Increasing Your FICO Score for Home Buying
You might think 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. Saving your money for a down payment is great, but if you lack a strong credit score to back it up, you could end up renting longer than you expected in Healdsburg until you raise your score.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people traditionally 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 credit. Some of the pieces in reviewing your FICO score are:
- 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?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
Lenders want to make sure that giving you a loan isn't a risk for them. Your credit score gives lenders an insight into what type of borrower you'll be based solely on your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest paid over the life of the loan could be more than double the amount of an individual having a stronger FICO score.
We're used to working with all levels of FICO scores. Call us at (707) 869-9067 and we can help you get on the right track to the home of your dreams.
There are strategies to boost your score. Improving your FICO score takes time. It can be difficult to make a significant stride change in your FICO score with quick fixes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. You'll improve your credit score by using these tips:
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, make sure you pay them off in no more than two or three payments.
- Pay on time. How often you're late with payments greatly affects your credit score. 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 this way, but it's the surest way to show that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. If you find 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.
- 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 25% of their credit limit than to have the most of your debt transferred to one card.
- Apply for gas cards or department store credit. For those who have non-existent credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and stay on top of your payments, which will raise your credit. You should always avoid keeping a large balance for more than a couple of billing cycles because these types of cards usually have a surprising interest rate.
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. Keep in mind 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 damaging your credit score. With the help of RE/MAX Full Spectrum - Roxanne Mercer, shopping for a mortgage 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.