First-Time Buyer's Guide to Better Credit
Most people assume that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process starts with your finances. To make your goal of homeownership realized, considering your credit score is a must along with the type of mortgage loan for which you'll qualify in Seminole.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. Most people usually have a score of 600, but scores range from 300 to 850. With the change in the economy, however, some people have seen their score drop by hundreds of points after job loss, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in summing up your FICO score are:
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many late payments have you made?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your credit score gives lenders an insight into what type of borrower you'd be based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get a decent interest rate. You can qualify for a mortgage loan with a lower score, but the interest accrued in the long run could be more than double the amount of someone having a stronger credit score.
Improving your FICO score is the first step in owning a home. Contact us and we can help you get on the right track to the home of your dreams.
You want an improved score, but how do you get it? Improving your FICO score takes time. It can be difficult to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Correct your credit report. If you find incorrect items on your credit report, contact 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 give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't sound like a good idea. But, you don't want to have one card that is at the limit and have the rest of your cards at a zero balance. It's better to have each of your cards at a lower balance than to have all of your debt transferred to a single card.
- Apply for gas cards or department store credit. For those who have non-existent credit or low credit, retail credit cards and gas credit cards are ways to repair credit, increase your spending limits and keep up your payments, which will raise your credit. You must always avoid holding a high balance for more than a couple of months because these types of cards traditionally have a higher interest rate.
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, pay them off in no more than two or three payments.
- Pay on time. Delinquent payments instantly lower your credit score. It's one of the reasons people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the most reliable way to prove that you're able to make payments to a bank.
Knowing the ways you can build up your credit score, you're one step closer to becoming a homeowner. Remember that when you're ready to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid a negative mark on your credit score. With the help of Future Home Realty, shopping for a mortgage can be a stress-free experience so you, too, can become a homeowner.
Learn more about FICO scores at myFICO.com, Fair Isaac's informational site and review your credit history for free 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.