Raising Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. Putting back your money for a down payment is a good idea, but if you don't have an acceptable credit score to reinforce it, you could find yourself renting for another couple of years in Fall River, Massachusetts until your FICO score is acceptable.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people normally having a score of 600. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get credit. Some of the pieces in reviewing your FICO score are:
- Payment History — Do you pay your bills on time every month?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
Lenders want to be positive that allowing you a loan is a safe move. Your credit score gives lenders an insight into what type of borrower you'll be based solely on your credit history. You'll need a score of at least 700 to get a acceptable interest rate. You can qualify for a mortgage loan with a lower score, but the interest paid over time could be more than double the amount of an individual having a near perfect credit score.
We're used to working with all levels of credit history. Contact us and we can help you get on the right track to the home of your dreams.
There are plans to raise your score. Improving your FICO score takes time. It can be hard to make a significant change in your number with small changes, but your score can improve in a few years by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Keep your cards active. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts stay active. But, be sure to pay them off in one or two payments.
- Pay on time. Payment history is a huge factor in your FICO score. It's one of the reasons people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the surest way to prove that you're able to make payments to a bank.
- Ensure that your credit history is correct. If you find mistakes on your credit report, write to the bureau requesting that the item be removed. If you have a common name or the same name as a family member, you'll want to pay extra attention to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you steer clear of having one card that is maxed out and have the rest of your cards at a zero balance. It's better to have each of your cards at a smaller balance than to have all of your debt taking up the balance one card.
- Store cards and service station cards. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to improve credit, increase your credit limits and keep up your payments, which will raise your FICO score. You must always beware of carrying a large balance for more than a couple of billing cycles because these types of cards more than likely have a surprisingly high interest rate.
Knowing the ways you can improve your credit score, you're one step closer to becoming a homeowner. Remember that when it's time to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid a negative mark on your credit score. With the help of E Z Home Search Real Estate Inc., the loan application process can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports at annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: equifax.com, experian.com and transunion.com.