Increasing 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. The quality of your wallet begins the home buying process. 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 Rice Lake.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually 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 factors in summing up your FICO score are:
- 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 loans and credit cards?
- Payment History — Do you pay your bills on time ?
Lenders want to ensure that allowing you a loan is a safe move. Your credit score gives lenders a view of what type of borrower you'd be solely because of your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated in the long run could be more than double that of someone with a near perfect FICO score.
Staying on top of your FICO score is the first step in buying a home. Contact us and we can help you get on the right track to the home of your dreams.
There are methods to boost your score. Building your FICO score takes time. It can be hard to make a significant stride 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 most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Stay on top of payments. Your credit score plummets with every account that goes to collections. 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 rebuild your credit this way, but it's the surest way to show that you're able to make payments to a lender.
- 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.
- 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 at the limit and have the rest of your cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have the most of your debt transferred to one card.
- Apply for service station cards or retail credit. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and keep up your payments, which will raise your credit. You must always avoid carrying a large balance for too long because these types of cards traditionally have a surprising interest rate.
- Don't let your cards get dusty. 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, make sure you pay them off in one or two payments.
Now that you know more 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 home, 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 Advantage, 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 you can review all of your credit reports for free each year 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.