Tips on Improving Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. To become a homeowner, considering your credit score is a must along with the type of lender for which you'll qualify in Naples, Florida.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people usually have a score of 650, but scores range 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 a loan. Some of the pieces in deciding your FICO score include:
- 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 credit cards and loans?
- Payment History — Do you pay your bills on time ?
In reviewing your credit history, 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. As a result, you have three scores, one for each bureau.
Lenders want to make sure that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you are 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. 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 credit score.
I'm used to working with all levels of credit history. Contact me and I can help you get on the right track to the home of your dreams.
You want an improved score, but how do you get it? Improving your FICO score takes time. It can be rare to make a significant change in your number with quick fixes, but your score can improve in a year or two by keeping tabs your credit report and by using your credit wisely. The best way to do this is to know your FICO score. Here are some ways you can improve your credit score:
- Apply for gas cards or retail credit. For those who have no credit or low 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 FICO score. You must always avoid carrying a large balance for too long because these types of cards normally have a larger interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, pay them off in one or two payments.
- Stay on top of payments. Late payments kill your credit history. It's where people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the surest way to prove that you're able to make payments to a lender.
- Correct your credit report. If you discover 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.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you don't want to have 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 an even balance than to have all of your debt transferred to a single card.
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. Keep in mind that when it's time to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With the help of Metro Properties, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit 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.