Ways to Raise Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet starts the home buying process. Saving your money for a down payment is a good idea, but if you lack an acceptable credit score to back it up, you could end up renting for another couple of years in Burlington, North Carolina until your score improves.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. Most people traditionally have a score of 600, but scores are tiered from 300 to 850. With the change in the economy, however, some borrowers have seen their score drop by hundreds of points because of job loss, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors 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 loans and credit cards?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
Lenders want to be positive that giving you a loan isn't a risk for them. Your credit score gives lenders an insight into what type of borrower you'd be solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get a decent interest rate. You'll still get approved for a loan with a lower score, but the interest accumulated over time could be more than double the amount of someone having a near perfect FICO score.
Improving your FICO is the first step in buying a home. Call us at (336) 226-9374 and we can help you get on the right track to the home of your dreams.
There are methods to boost your score. Improving your FICO score takes time. It can be hard to make a large-scale change in your FICO score with quick fixes, 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. Here are some methods to 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 experienced job loss see the biggest hit 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.
- Ensure that your credit history is correct. If you discover incorrect items 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.
- Even out your debt. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is at the maximum and have the rest of your 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 sitting on a single card.
- Store cards and service station cards. For those who have non-existent credit or below average credit, chain store credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and have a solid payment history, which will raise your FICO score. You should always beware of holding a high balance for too long because these types of cards normally have a larger interest rate.
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, 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'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. Know that when it's time to apply for a loan to purchase a home, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of David Massey Real Estate, shopping for a mortgage is sure to go more smoothly so you, too, can achieve home ownership.
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.