Raising Your FICO Score for Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. Putting back your money for a down payment is a good idea, but if you lack an acceptable credit score to reinforce it, you could end up renting for another couple of years in Delray Beach, Florida until you build up your score.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people normally having a score of 600. Job loss has been common in the last few years, but 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 factors in determining your FICO score are:
- Payment History — Do you pay your bills on time every month?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
Lenders want to make sure that allowing you a loan isn't a risk for them. Your FICO score gives lenders a view of what type of borrower you are 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 stronger FICO score.
Staying on top of your FICO score is the best way to ease into owning a home. Call us at (561) 809-8328 and we can help you get on the right track to the home of your dreams.
You want a stronger score, but how do you get there? Building your FICO score takes time. It can be rare to make a significant stride change in your FICO score with quick fixes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- Correct your credit report. If you find mistakes on your credit report, contact 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.
- Even out your debt. At first, this doesn't seem like a good idea. But, you steer clear of having one card that is holding the maximum and have your remaining 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.
- Chain store cards and gas cards. For those who have non-existent credit or low credit, department store 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 must always avoid keeping a large balance for too long because these types of cards usually have a surprisingly high interest rate.
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, make sure you pay them off in one or two payments.
- Keep up with payments. Late payments hurt your credit history. It's one of the reasons people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to build up your credit this way, but it's the most reliable way to prove that you're able to make payments to a bank.
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 you're ready to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid damaging your credit score. With the help of Illustrated Properties, the loan application 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 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.