First-Time Buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins with your finances. To propel your dreams of homeownership forward, considering your credit score is a must along with the type of loan for which you'll qualify in Denton County, Texas.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. Most people traditionally have a score of 600, but scores are tiered from 300 to 850. In recent years, however, some people have seen their score drop by hundreds of points because of job loss, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in reviewing your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
Lenders want to be positive that giving you a loan is a safe move. Your credit score gives lenders a view of what type of borrower you'll be based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get an acceptable interest rate. You can get approved for a mortgage with a lower score, but the interest paid in the long run could be more than double the amount of someone with a superior FICO score.
Improving your FICO score is the best way to ease into purchasing a home. Call us at (817) 675-7700 and we can help you get on the right track to the home of your dreams.
There are strategies to increase your score. Building your FICO score takes time. It can be rare to make a significant change in your FICO score with small changes, but your score can improve in a year by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. You'll improve your credit score by using these pointers:
- Pay on time. Late payments kill your FICO score. It's where people who have recently been unemployed see the biggest hit 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 able to make payments to a bank.
- Ensure that your credit history is correct. If you discover incorrect items 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 sound like a good idea. But, you don't want to have 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 about 30% of their credit limit than to have all of your debt taking up the balance a single card.
- Department store cards and gas cards. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to get credit, increase your spending limits and have a solid payment history, which will raise your FICO score. You should always beware of carrying a high balance for too long because these types of cards traditionally have a steeper interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts stay active. But, be sure to pay them off in one or two payments.
Knowing the ways you can improve your credit score, you can move toward becoming a homeowner. Remember 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 damaging your credit score. With the help of 2mac Realty Group, the loan application 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 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.