How's Your FICO?
Most people assume that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. The quality of your wallet starts the home buying process. Saving your money for a down payment is great, but if you lack an acceptable credit score to back it up, you could end up renting longer than you expected in Orlando, Florida until you raise your score.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. 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 drop dramatically because of job loss, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in summing up your FICO score include:
- Payment History — Do you pay your bills on time each month?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- 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 credit cards and loans?
In reviewing your credit history, 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 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 ensure that allowing you a loan isn't a risk for them. Your credit 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. If your score is less than that, you can still qualify for a loan, but the interest accumulated over the life of the loan could be more than double the amount of an individual with a better credit score.
Improving your credit is the best way to ease into owning a home. Contact us 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 it? Building 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 keeping tabs your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Department store cards and gas station cards. For those who have no credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to get credit, increase your spending limits and keep up your payments, which will raise your FICO score. You must always avoid charging a high balance for more than a couple of months because these types of cards normally have a higher interest rate.
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts stay active. But, be sure to pay them off in one or two payments.
- Stay on top of 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 restore your credit this way, but it's the surest way to show that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. If you find mistakes on your credit report, contact 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 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 20% of their credit limit than to have all of your debt sitting on a single card.
Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to homeownership, 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 Royalty Real Estate Boutique, Inc., the loan process is sure to go more smoothly 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.