FICO - The First Step to Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet begins the home buying process. Putting back your money for a down payment is great, but if you don't have an acceptable credit score to reinforce it, you could find yourself renting longer than you expected in Orlando, Florida until you build up your score.
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 600, but scores are tiered from 300 to 850. Job loss has been common in the last few years, but 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 pieces in summing up your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your credit score gives lenders a view of what type of borrower you are solely because of your credit history. You'll need a score of at least 740 to get a decent interest rate. If your score is less than that, you can still qualify for a loan, but the interest accumulated over time could be more than double the amount of someone with a near perfect credit score.
Improving your FICO is the best way to ease into buying a home. Call us at 407-380-6363 and we can help you get on the right track to the home of your dreams.
There are ways to increase your score. Improving your FICO score takes time. It can be hard to make a significant change in your FICO score with quick fixes, but your score can improve in a few years by keeping tabs your credit report and by wisely using credit. The best way to do this is to know your FICO score. Here are some ways you can improve your credit score:
- Keep up with payments. Delinquent payments drastically 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 with payment history, but it's the surest way to show that you're able to make payments to a bank.
- Correct your credit report. 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.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is maxed out and have the rest of your cards at a zero balance. It's better to have each of your cards at about 25% of their credit limit than to have the most of your debt transferred to one card.
- Chain store cards and gas station cards. For those who have non-existent credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to repair credit, increase your credit limits and have a solid payment history, which will raise your credit. You must always beware of keeping a high balance for more than a couple of billing cycles because these types of cards more than likely have a higher interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards so that your accounts stay active. But, be sure to 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 step in owning a home, 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 damaging your credit score. With the help of Royalty Real Estate Boutique, Inc., 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 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.