Scoring Your Credit
Most people assume that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet begins the home buying process. To become a homeowner, considering your credit score is a must along with the type of lender for which you'll qualify in Fort Worth.
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 most people normally having a score of 600. Since we've experienced an economic downturn, however, some borrowers have seen their score lowered as a result of underemployment, charged off credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in calculating your FICO score include:
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many months do you make late payments?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
When you pull your credit report, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to calculate 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 isn't a risk for them. Your FICO score gives lenders a view of what type of borrower you'd be based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get a satisfactory interest rate. If your score is lower, 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 having a stronger credit score.
Getting your credit in order is the best way to ease into owning a home. Call us at (682) 667-5556 and we can help you get on the right track to the home of your dreams.
How do you boost your credit score? Building your FICO score takes time. It can be difficult to make a significant change in your number with quick fixes, but your score can improve in a year by keeping tabs 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. Here are some methods to improve your credit score:
- Keep your cards active. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, make sure you pay them off in no more than two or three payments.
- Keep up with payments. Delinquent payments instantly drop your credit 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 prove that you're able to make payments to a lender.
- Ensure that your credit history is correct. If you find incorrect items 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 give extra care to make sure the activity reported is correct.
- 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 maximum and have your remaining cards at a zero balance. It's better to have each of your cards at about 30% of their credit limit than to have the bulk of your debt sitting on one card.
- Chain store cards and service station cards. For those who have non-existent credit or low credit, store credit cards and gas credit cards are ways to repair credit, increase your credit limits and stay on top of your payments, which will raise your credit. You should always avoid maintaining a high balance for too long because these types of cards traditionally have a larger interest rate.
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. Remember that when you're ready 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 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.