Scoring Your FICO
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins with your finances. Without an above average FICO score, entering into a loan for a house is harder and, you could find yourself renting longer than you expected in Carthage until you build up your score.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 650, but scores range from 300 to 850. In recent years, however, some people have seen their score drop by hundreds of points because of job loss, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in summing up your FICO score include:
- Credit Inquiries — Do you have too many open accounts?
- 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?
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 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 be positive that giving you a loan isn't a risk for them. Your FICO score gives lenders an insight into what type of borrower you are solely because of your credit history. You'll need a score of at least 700 to get a decent interest rate. If your score is less than that, you can still qualify for a loan, but the interest paid over the life of the loan could be more than double the amount of someone having a stronger credit score.
Getting your credit in order is the best way to ease into owning a home. Call us at 417-358-6088 and we can help you get on the right track to the home of your dreams.
You want a better score, but how do you get there? Building your FICO score takes time. It can be hard to make a significant stride change in your number 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 best way to do this is to know your FICO score. You'll improve your credit score by using these tips:
- 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, pay them off in no more than two or three payments.
- Pay on time. How often you're late with payments greatly affects your credit score. It's one of the reasons 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 bank.
- 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 maxed out 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 the most of your debt sitting on one card.
- Apply for gas cards or chain store credit. For those who have no credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to improve credit, increase your credit limits and keep up your payments, which will raise your FICO score. You should always avoid holding a high balance for more than a couple of billing cycles because these types of cards usually have a higher interest rate.
Knowing the methods you can use to raise your FICO score, you can move toward 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 damaging your credit score. With the help of Charles Burt Homefolks, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
Get more information by visiting 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.