Improving Your FICO Score for Home Buying
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, you must consider your FICO score along with the type of lender for which you'll qualify in Lewisburg, Tennessee.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people traditionally have a score of 650, but scores range from 300 to 850. In recent years, however, some people have seen their score drop dramatically as a result of job loss, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in deciding your FICO score are:
- 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 — 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?
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 determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. You have a credit score with all three of the bureaus.
Lenders want to ensure that allowing you a loan is a safe move. Your FICO score gives lenders a view of what type of borrower you are based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get a decent interest rate. You can get approved for a loan with a lower score, but the interest accrued over the life of the loan could be more than double the amount of someone having a stronger credit score.
Improving your FICO score is the best way to ease into purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
How do you get a stronger score? Improving your FICO score takes time. It can be difficult to make a large-scale change in your FICO score with small changes, but your score can improve in a year or two by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards so that your accounts stay active. But, be sure to pay them off in one or two payments.
- Keep up with payments. Payment history is a big factor in 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 restore your credit this way, but it's the most reliable way to show that you're able to make payments to a bank.
- Ensure that your credit history is correct. If you discover mistakes on your credit report, contact the bureau asking 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 sound like a good idea. But, you steer clear of having one card that is at the limit and have your remaining cards at a zero balance. It's better to have each of your cards at an even balance than to have the most of your debt taking up the balance one card.
- Retail cards and gas station cards. For those who have non-existent credit or below average credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and keep up your payments, which will raise your FICO score. You must always avoid maintaining a high balance for too long because these types of cards usually have a surprising interest rate.
Now that you're better informed about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Keep in mind 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 damaging your credit score. With the help of David Jent Realty & Auction, shopping for a mortgage is sure to go more smoothly so you, too, can achieve home ownership.
Get more information by visiting 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.