Tips on Raising Your FICO Score for Home Buying
You might think that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet begins the home buying process. Saving your money for a down payment is great, but if you lack an acceptable credit score to back it up, you could find yourself renting longer than you expected in Denton County, Texas until your FICO score is acceptable.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with most people traditionally having a score of 600. 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 just that and often means you can't get credit. Some of the pieces in summing up your FICO score are:
- Payment History — How many months do you make late payments?
- 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?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
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. This means you have three scores, one for each scoring model.
Lenders want to be positive that allowing you a loan is a safe move. Your FICO score gives lenders an insight into what type of borrower you'll be solely because of your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. You'll still get approved for a loan with a lower score, but the interest paid over time could be more than double that of an individual having a higher credit score.
Getting your credit in order is the best way to ease into owning a home. Call us at (817) 675-7700 and we can help you get on the right track to the home of your dreams.
How do you obtain a better score? Building your FICO score takes time. It can be difficult to make a significant stride change in your FICO score with small changes, but your score can improve in a year by keeping tabs your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Pay on time. Your credit score plummets with each account that goes to collections. It's one of the reasons people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to rebuild 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 find incorrect items 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 give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't sound 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 a smaller balance than to have the most of your debt transferred to one card.
- Retail cards and gas station cards. For those who have no credit or low credit, store credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and stay on top of your payments, which will raise your FICO score. You must always avoid charging a high balance for too long because these types of cards normally have a steeper interest rate.
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts stay active. But, make sure you pay them off in no more than two or three payments.
Knowing the ways you can raise your FICO score, you're one step closer to becoming a homeowner. Remember that when you're ready to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of 2mac Real Estate Group, the loan process can be a stress-free experience 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.