Increasing Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet begins the home buying process. Saving your money for a down payment is great, but if you don't have an acceptable credit score to reinforce it, you could find yourself renting longer than you expected in Columbus, Ohio until you improve your score.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. Most people traditionally have a score of 650, but scores range from 300 to 850. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get credit extended to you in the form of a mortgage loan. Some of the pieces in determining your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How often do you make late payments?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. 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 qualify for a loan with a lower score, but the interest paid over time could be more than double that of someone having a better FICO score.
Improving your credit score is the first step in purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
You want a higher score, but how do you get it? Improving your FICO score takes time. It can be hard to make a significant change in your credit score with quick fixes, but your score can improve in a few years by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Even out your debt. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is maxed out and have your remaining cards at a zero balance. It's better to have each of your cards at a lower balance than to have all of your debt sitting on one card.
- Department store cards and service station cards. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to get credit, increase your credit limits and keep up your payments, which will raise your credit. You should always beware of charging a high balance for more than a couple of billing cycles because these types of cards traditionally have a higher 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 so that your accounts stay active. But, be sure to pay them off in no more than two or three payments.
- Pay on time. Your credit score plummets with every account that goes to collections. It's where people who have recently experienced job loss 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 responsible enough to make payments to a bank.
- Correct your credit report. If you find mistakes on your credit report, write to 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 know more about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Know that when it's time to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of SMART MOVE, REALTORS, the loan process can be a stress-free experience 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.