The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet starts the home buying process. Saving your money for a down payment is great, but if you don't have an acceptable credit score to back it up, you could find yourself renting for another couple of years in Greenville until you build your score.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 600, but scores are tiered from 300 to 850. With the change in the economy, however, some people have seen their score drop by hundreds of points as a result of job loss, charged off credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors in deciding 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 your available credit?
- Credit Inquiries — Do you have too many open accounts?
- 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 determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. You have a credit score with all three of the bureaus.
Lenders want to make sure that allowing you a loan is a safe move. Your FICO score gives lenders view of what type of borrower you'd be based solely on your credit history. You'll need a score of at least 700 to get a decent interest rate. If your score is less than that, you can still qualify for a loan, but the interest accumulated over the life of the loan could be more than double that of someone with a stronger FICO score.
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We're used to working with all levels of credit history. Call us at 618-664-7355 and we can help you get on the right track to the home of your dreams.
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How do you boost your credit score? Improving your FICO score takes time. At 1ST CHOICE REALTY, we know it's difficult to make a large-scale 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. Here are some ways you can improve your credit score:
- Apply for gas cards or chain store credit. For those who have non-existent credit or below average credit, retail credit cards and gas credit cards are ways to obtain credit, increase your spending limits and have a solid payment history, which will raise your FICO score. Just avoid maintaining a high balance for too long because these types of cards traditionally have a steeper interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts stay active. But, pay them off in one or two payments.
- Stay on top of payments. Late payments kill your credit score. 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 this way, 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 find mistakes 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 seem like a good idea. But, you want to avoid of having one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at about less than 40% of their credit limit than to have the most of your debt transferred to a single card.
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Now that you're more informed 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 home, you'll want to keep your applications within a two-week window to avoid a negative mark on your credit score. With the help of 1ST CHOICE REALTY, shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
To learn more, visit www.myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.
At 1ST CHOICE REALTY we work with all tiers of FICO scores and can help you step into home ownership with the right lender for you. E-mail us at josussenbach@sbcglobal.net or call 618-664-7355 for more information.
