How's Your Credit?
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. Without an above average credit score, buying a house is harder and, you could find yourself renting for another couple of years in Victorville until your FICO score is acceptable.
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 are tiered from 300 to 850. 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 a low score and that often means you can't get a loan. Some of the factors in calculating your FICO score include:
- Payment History — Do you pay your bills on time every month?
- 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 credit cards and loans?
Lenders want to be positive that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you'll be solely because of your credit history. You'll need a score of at least 700 to get a 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 that of someone having a higher credit score.
We're used to working with all tiers of credit scores. 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 there? Improving your FICO score takes time. It can be difficult to make a large-scale change in your number 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. 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 want to avoid of having 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 about 25% of their credit limit than to have the majority of your debt taking up the balance one card.
- Apply for gas station cards or store credit. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and have a solid payment history, which will raise your credit. You should always avoid holding a high balance for too long because these types of cards more than likely have a higher 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, be sure to pay them off in one or two payments.
- Pay on time. Late payments hurt 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 this way, but it's the most reliable way to show that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. 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're more 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. Know that when you're ready to apply for a loan to purchase a house, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Wiest Realty, Inc., 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 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.