Home buyer's Guide to Better Credit
Most people assume that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process begins and ends with your finances. Without an acceptable credit score, buying a house is more difficult and, you could end up renting for another couple of years in Fort Worth until your score improves.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with the majority of people normally 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 a low score and that often means you can't get a decent interest rate. Some of the factors in deciding your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- 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 — How many times has your credit history been accessed by someone other than you?
Lenders want to be positive that giving you a loan isn't a risk for them. Your FICO score gives lenders an insight into what type of borrower you'd be based solely on your credit history. You'll need a score of at least 740 to get a acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest accrued over the life of the loan could be more than double that of someone with a higher FICO score.
Staying on top of your FICO score is the first step in owning a home. Contact us and we can help you get on the right track to the home of your dreams.
How do you boost your credit score? Improving your FICO score takes time. It can be hard to make a significant change in your number with small changes, but your score can improve in a year by monitoring your credit report and by using your credit wisely. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- Use your credit. 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.
- Keep up with payments. How often you're late with payments greatly affects your credit score. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to restore your credit this way, but it's the surest way to prove that you're able to make payments to a lender.
- Ensure that your credit history is correct. 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.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is maxed out and have your remaining 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 majority of your debt transferred to one card.
- Apply for gas station cards or store credit. For those who have no credit or below average credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and stay on top of your payments, which will raise your credit. You should always avoid charging a high balance for too long because these types of cards more than likely have a surprising interest rate.
Knowing the ways you can improve your FICO score, you can move toward becoming a homeowner. 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 damaging your credit score. With the help of DFW Skyline Realty, the loan application process can be a stress-free experience so you, too, can become a homeowner.
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.