Improving Your FICO Score for Home buyers
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet starts the home buying process. To make your goal of homeownership realized, you must consider your FICO score along with the type of lender for which you'll qualify in Sherman Oaks, California.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people traditionally having a score of 650. Even though more people these days are experiencing job loss and delinquent credit cards, 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 loans and credit cards?
- 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?
Lenders want to ensure that allowing you a loan is a safe move. Your credit score gives lenders a view of what type of borrower you are based solely on your credit history. You'll need a score of at least 700 to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest paid over time could be more than double that of someone with a near perfect credit score.
Improving your credit score is the best way to ease into purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
There are strategies to increase your score. Building your FICO score takes time. It can be rare to make a significant change in your number with small changes, 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. Here are some ways you can improve your credit score:
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts stay active. But, make sure you pay them off in one or two payments.
- Keep up with payments. Delinquent payments instantly drop your credit score. It's where people who have recently been unemployed see the biggest hit 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 lender.
- Ensure that your credit history is correct. If you discover mistakes on your credit report, write to the bureau asking 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.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you steer clear of having 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 25% of their credit limit than to have the most of your debt sitting on one card.
- Retail cards and gas cards. For those who have no credit or below average 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 must always beware of keeping a high balance for too long because these types of cards usually have a higher interest rate.
Knowing the ways you can improve your FICO score, you're one step closer to becoming a homeowner. Know that when it's time 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 Charise Michell, Estate Agent, Wish Sotheby’s International Realty, CalBRE#01425090, the loan application process 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 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.