Tips on Raising Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet starts the home buying process. To become a homeowner, considering your credit score is a must along with the type of mortgage loan for which you'll qualify in Saratoga Springs.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people normally having a score of 600. With the change in the economy, however, some borrowers have seen their score lowered because of job loss, closed credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in summing up 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 — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
When you pull your credit report, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. As a result, 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 risk. Your FICO score gives lenders an insight into what type of borrower you'd be based solely on your credit history. You'll need a score of at least 740 to get a decent interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest paid over time could be more than double that of someone with a better FICO score.
We're used to working with all levels of FICO scores. 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 significant change in your FICO score with small changes, but your score can improve in a year by monitoring your credit report and by using your credit wisely. The most important thing is to know your FICO score. You'll improve your credit score by using these pointers:
- Apply for gas station cards or department store credit. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always beware of keeping a large balance for more than a couple of months because these types of cards traditionally have a steeper interest rate.
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, pay them off in no more than two or three payments.
- Keep up with payments. Delinquent payments drastically drop your credit score. It's where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the surest way to show that you're able to make payments to a lender.
- 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.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you don't want to have one card that is at 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 bulk of your debt transferred to one card.
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 it's time to apply for a loan to purchase a house, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of High Rock Realty, Inc., shopping for a mortgage is sure to go more smoothly so you, too, can achieve home ownership.
Learn more about FICO scores at 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.