Scoring Your Credit - How's Your FICO?
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet begins the home buying process. Saving your money for a down payment is great, but if you don't have an acceptable credit score to reinforce it, you could find yourself renting longer than you expected in Fort Worth until your FICO score is acceptable.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people traditionally having a score of 650. Since we've experienced an economic downturn, however, some borrowers have seen their score lowered after unemployment, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in calculating your FICO score are:
- Credit Inquiries — Do you have too many open accounts?
- 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?
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. You'll need a score of at least 700 to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated over the life of the loan could be more than double the amount of an individual having a better credit score.
Getting your credit in order is the first step in purchasing a home. Call us at (682) 667-5556 and we can help you get on the right track to the home of your dreams.
There are ways to boost your score. Building 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 by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Spread your debt around. At first, this doesn't sound 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 about 25% of their credit limit than to have all of your debt taking up the balance a single card.
- Apply for service station cards or chain store credit. For those who have no credit or below average credit, department store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and keep up your payments, which will raise your credit. You must always beware of maintaining a high balance for too long because these types of cards usually have a higher interest rate.
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, be sure to 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 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.
- 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 give extra care to make sure the activity reported is correct.
Knowing the methods you can use to build up your FICO score, you can move toward becoming a homeowner. Keep in mind that when you're ready to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of DFW Skyline Realty, shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
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.