How's Your Credit?
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 a good idea, but if you don't have an acceptable credit score to reinforce it, you could find yourself renting for another couple of years in Burlington, North Carolina until your FICO score is acceptable.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people traditionally have a score of 650, but scores are tiered 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 just that and often means you can't get a decent interest rate. Some of the factors in reviewing your FICO score include:
- 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?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. Your FICO 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 acceptable interest rate. You can get approved for a loan with a lower score, but the interest accrued in the long run could be more than double the amount of an individual having a stronger credit score.
We're used to working with all tiers of FICO scores. Call us at (336) 226-9374 and we can help you get on the right track to the home of your dreams.
You want a stronger score, but how do you get there? Improving your FICO score takes time. It can be rare to make a significant stride change in your number with small changes, but your score can improve in a few years by keeping tabs your credit report and by using your credit wisely. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Stay on top of payments. How often you're late with payments greatly affects 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 with payment history, but it's the most reliable way to show that you're able to make payments to a lender.
- Ensure that your credit history is correct. If you discover 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 pay extra attention 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 maxed out and have your remaining cards at a zero balance. It's better to have each of your cards at a smaller balance than to have all of your debt sitting on one card.
- Store cards and gas station cards. For those who have non-existent credit or low credit, store credit cards and gas credit cards are ways to improve credit, increase your spending limits and stay on top of your payments, which will raise your FICO score. You must always avoid keeping a high balance for too long because these types of cards usually have a steeper interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts maintain an active status. But, pay them off in no more than two or three payments.
Now that you know more about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Keep in mind that when it's time to apply for a loan to purchase a house, 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 David Massey Real Estate, shopping for a mortgage 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 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.