Tips on Increasing Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. To become a homeowner, considering your credit score is a must along with the type of loan for which you'll qualify in Williamsburg.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with most people normally having a score of 650. With the change in the economy, however, some people have seen their score drop dramatically as a result of underemployment, closed 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 include:
- Payment History — How many late payments have you made?
- 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 loans and credit cards?
Lenders want to make sure that allowing you a loan isn't a risk for them. 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 an acceptable interest rate. You can get approved for a mortgage with a lower score, but the interest accumulated over time could be more than double the amount of someone having a higher credit score.
I'm used to working with all tiers of FICO scores. Call me at (757) 806-6021 and I can help you get on the right track to the home of your dreams.
There are strategies to boost your score. Building your FICO score takes time. It can be difficult to make a significant stride change in your FICO score with small changes, but your score can improve in a few years by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. Here are some ways you can improve your credit score:
- 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 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 lower balance than to have the most of your debt transferred to a single card.
- Apply for service station cards or store credit. For those who have no credit or low credit, store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and keep up your payments, which will raise your FICO score. You should always beware of keeping a large balance for more than a couple of billing cycles because these types of cards usually have a steeper interest rate.
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, be sure to 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 drastically lower your credit score. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the surest way to show that you're able to make payments to a bank.
- Correct your credit report. If you discover 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.
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 house, you'll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With the help of RE/MAX Peninsula at New Town, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit 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.
I won't judge you based on your credit scores and can help you step into home ownership with the right lender for you. E-mail me at firstname.lastname@example.org or call (757) 806-6021 for more information.