Ways to Increase Your FICO Score for Home Buying
The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process begins with your finances. Saving your money for a down payment is great, but if you don't have an acceptable credit score to reinforce it, you could end up renting for another couple of years in Burlington, North Carolina until your FICO score is acceptable.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. Most people usually have a score of 600, but scores range from 300 to 850. Since we've experienced an economic downturn, however, some people have seen their score drop dramatically after 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 are:
- Payment History — How many late payments have you made?
- 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?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
In reviewing your credit history, you'll find that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each scoring model.
Lenders want to make sure that giving you a loan is a safe move. Your FICO score gives lenders a view of what type of borrower you'll 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 satisfactory interest rate. You can get approved for a mortgage loan with a lower score, but the interest accrued over time could be more than double that of someone having a near perfect credit score.
We're used to working with all tiers of credit history. 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 higher score, but how do you get there? Improving your FICO score takes time. It can be difficult to make a significant stride change in your FICO score with quick fixes, but your score can improve in a few years by monitoring 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 ways you can improve your credit score:
- Apply for service station cards or store credit. For those who have non-existent credit or low credit, retail credit cards and gas credit cards are ways to begin your credit history, increase your credit limits and keep up your payments, which will raise your credit. You must always beware of charging a high balance for more than a couple of billing cycles because these types of cards normally have a larger 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 stay active. But, make sure you pay them off in one or two payments.
- Stay on top of payments. Delinquent payments instantly drop your credit score. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the surest way to show 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 pay extra attention to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't seem like a good idea. But, you steer clear of having 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 lower balance than to have the bulk of your debt transferred to a single card.
Knowing the methods you can use to raise your credit score, you're one step closer to becoming a homeowner. Know that when you're ready to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid a negative mark on your credit score. With the help of David Massey Real Estate, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit 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.