Choosing a lender isn’t the first step in becoming a homeowner. The content of your wallet begins the home buying process. Without an acceptable FICO score, buying a house is harder and, you could find yourself renting for another couple of years in Pitt County until you build up your score.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with the majority of people normally having a score of 600. Even though more people these days are experiencing job loss and delinquent credit cards, FICO scores aren’t necessarily adjusted “on a curve.” A low score is just that and often means you can’t get credit extended to you via a mortgage loan. Some of the pieces in calculating 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 how much credit you have available?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
Lenders want to make sure that giving you a loan is a safe move. Your FICO score gives lenders an insight into what type of borrower you’d be solely because of 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 satisfactory interest rate. You’ll still qualify for a mortgage loan with a lower score, but the interest accumulated over time could be more than double the amount of an individual with a better FICO score.
How do you boost your credit score? Building your FICO score takes time. It can be rare to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year or two by monitoring your credit report and by using your credit wisely. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Even out your debt. At first, this doesn’t seem like a good idea. But, you don’t want to have one card that is holding the maximum 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 the bulk of your debt taking up the balance one card.
- Apply for gas cards or chain store credit. For those who have no credit or low credit, department store credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and keep up your payments, which will raise your FICO score. You must always avoid charging a large balance for too long because these types of cards more than likely have a surprisingly high 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, make sure you pay them off in no more than two or three payments.
- Stay on top of payments. How often you’re late with payments greatly affects your credit 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 build up your credit with payment history, but it’s the surest way to prove that you’re able to make payments to a lender.
- Correct your credit report. If you discover 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 pay extra attention to make sure the activity reported is correct.
Now that you’re better informed 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 you’re ready to apply for a loan to purchase a home, you’ll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of HOME AT LAST Realty Solutions, shopping for a mortgage can be a stress-free experience so you, too, can become a homeowner.
Get more information by visiting www.myFICO.com, Fair Isaac’s informational site and once per year, for free, you can review all three of your credit reports at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.