First-Time Buyer's Guide to Better Credit

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 starts the home buying process. Without a reasonable FICO score, entering into a loan for a house is more difficult and, you could find yourself renting for another couple of years in Santa Rosa until your score improves.

The Fair Isaac Company bases your FICO score on the summary of your total credit history. Most people usually have a score of 600, but scores range from 300 to 850. Since we've experienced an economic downturn, however, some borrowers have seen their score drop dramatically after underemployment, charged off credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in determining your FICO score are:

• 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 every month?
• Credit to Debt Ratio — How much do you owe versus your available credit?

When you pull your credit report, you'll find 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. This means you have three scores, one for each scoring model.

Lenders want to make sure that allowing you a loan isn't a risk for them. Your FICO score gives lenders an insight into what type of borrower you'd be solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get an acceptable interest rate. You'll still get approved for a mortgage with a lower score, but the interest paid over the life of the loan could be more than double the amount of someone having a better credit score.

We're used to working with all levels of credit history. Call us at (707) 318-8829 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 rare to make a significant change in your credit score with quick fixes, but your score can improve in a year or two 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:

• Ensure that your credit history is correct. If you discover incorrect items on your credit report, write to 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 sound like a good idea. But, you steer clear of having one card that is maxed out 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 most of your debt taking up the balance one card.
• Apply for gas cards or store credit. For those who have non-existent credit or less-than-stellar credit, department store credit cards and gas credit cards are ways to improve credit, increase your spending limits and keep up your payments, which will raise your credit. You must always avoid holding a large balance for more than a couple of billing cycles because these types of cards usually have a larger interest rate.
• Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
• Keep up with payments. Delinquent payments drastically lower your credit score. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the most reliable way to show that you're able to make payments to a lender.

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 credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of Roxanne Mercer Real Estate, the loan process 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 once per year, for free, you can review all three of your credit reports 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.