Home buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet begins the home buying process. Saving your money for a down payment is great, but if you don't have a strong credit score to back it up, you could find yourself renting for another couple of years in Fort Worth until you improve 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 range from 300 to 850. 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 a low score and that often means you can't get a decent interest rate. Some of the pieces in deciding your FICO score include:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How often 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?
When you pull your credit report, you'll see 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 giving you a loan is a safe move. Your FICO score gives lenders a view of what type of borrower you are based solely on your credit history. You'll need a score of at least 700 to get a acceptable interest rate. You'll still get approved for a loan with a lower score, but the interest accrued over the life of the loan could be more than double that of an individual having a superior credit score.
We're used to working with all tiers of credit history. 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. Improving your FICO score takes time. It can be hard to make a significant change in your FICO score with small changes, but your score can improve in a year or two by monitoring your credit report and by using your credit wisely. The most important thing is to know your FICO score. You'll improve your credit score by using these tips:
- Store cards and service station cards. For those who have no credit or low credit, store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and have a solid payment history, which will raise your credit. You must always beware of keeping a large balance for more than a couple of months because these types of cards normally 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, use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.
- Pay on time. Late payments kill your FICO score. It's where 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 surest way to show that you're responsible enough to make payments to a bank.
- Correct your credit report. 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 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 don't want to have one card that is holding the maximum 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 taking up the balance one card.
Now that you're more informed 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 home, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects 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.
Get more information by visiting 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.