Home buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. To become a homeowner, considering your credit score is a must along with the type of loan for which you'll qualify in Carthage.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with the majority of people normally having a score of 600. With the change in the economy, however, some people have seen their score drop dramatically as a result of loss of employment, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors in reviewing your FICO score include:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How often do you make late payments?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
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 systems to calculate 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 bureau.
Lenders want to ensure that allowing you a loan isn't a risk for them. Your credit score gives lenders an insight into what type of borrower you are solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get a decent interest rate. You can qualify for a mortgage loan with a lower score, but the interest accumulated over time could be more than double that of someone with a stronger credit score.
Staying on top of your FICO score is the first step in purchasing a home. Call us at 417-358-6088 and we can help you get on the right track to the home of your dreams.
There are plans to improve your score. Building your FICO score takes time. It can be difficult to make a significant stride change in your number with quick fixes, but your score can improve in a year by monitoring your credit report and by using your credit wisely. The most important thing is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Even out your debt. At first, this doesn't sound 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.
- Apply for gas cards or chain store credit. For those who have no credit or below average credit, store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and stay on top of your payments, which will raise your credit. You should always avoid keeping a large balance for more than a couple of billing cycles because these types of cards more than likely have a larger interest rate.
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts maintain an active status. But, make sure you pay them off in no more than two or three payments.
- Keep up with payments. Delinquent payments instantly drop 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 restore your credit this way, but it's the surest way to prove that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. If you discover 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 pay extra attention to make sure the activity reported is correct.
Knowing the methods you can use to improve 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 damaging your credit score. With the help of Charles Burt Homefolks, shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
Get more information by visiting myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.