First-Time Buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. Without a reasonable FICO score, buying a house is more difficult and, you could end up renting for another couple of years in Seminole, Florida until your score improves.
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 traditionally having a score of 650. With the change in the economy, however, some people have seen their score drop by hundreds of points because of loss of employment, charged off credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in calculating your FICO score include:
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
In reviewing your credit history, you'll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. This means you have three scores, one for each bureau.
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 FICO 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 satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued over the life of the loan could be more than double the amount of someone having a stronger FICO score.
Getting your credit in order is the first step in buying a home. Contact us and we can help you get on the right track to the home of your dreams.
You want a stronger score, but how do you get it? Building your FICO score takes time. It can be hard to make a large-scale change in your credit score with quick fixes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. You'll improve your credit score by using these pointers:
- Store cards and gas cards. For those who have non-existent credit or less-than-stellar credit, department store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and stay on top of your payments, which will raise your FICO score. You must always avoid carrying a high balance for too long because these types of cards normally have a larger interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.
- Stay on top of payments. Late payments kill your credit history. It's where people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to build up your credit with payment history, but it's the surest way to prove that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. If you find mistakes 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.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you don't want to have one card that is maxed out and have your remaining 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.
Now that you know more about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Remember that when it's time 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, the loan application process is sure to go more smoothly so you, too, can become a homeowner.
Get more information by visiting myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.