Scoring Your Credit - How's Your Credit Score
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet starts the home buying process. Without an acceptable credit score, entering into a loan for a house is more difficult and, you could end up renting longer than you expected in Sherman Oaks until your score improves.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people normally having a score of 650. Since we've experienced an economic downturn, however, some borrowers have seen their score drop by hundreds of points because of underemployment, charged off credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in deciding your FICO score include:
- Credit to Debt Ratio — How much do you owe versus your available credit?
- 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?
In reviewing your credit history, you'll see 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. You have a credit score with all of the bureaus.
Lenders want to ensure that giving 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 700 or higher to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated in the long run could be more than double the amount of an individual with a higher credit score.
We're used to working with all tiers of credit history. Contact us and we can help you get on the right track to the home of your dreams.
You want a higher score, but how do you get it? Building your FICO score takes time. It can be hard to make a significant change in your credit score with quick fixes, but your score can improve in a few years by keeping tabs your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Use your credit. 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 maintain an active status. But, make sure you pay them off in no more than two or three payments.
- Stay on top of payments. Payment history is a huge factor in 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 most reliable way to prove that you're able to make payments to a bank.
- Correct your credit report. If you find mistakes on your credit report, contact 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 give extra care to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you want to avoid of having one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at an even balance than to have the most of your debt sitting on one card.
- Apply for gas station cards or store credit. For those who have no credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to obtain credit, increase your credit limits and have a solid payment history, which will raise your credit. You should always beware of carrying a large balance for more than a couple of months because these types of cards usually have a steeper interest rate.
Knowing the methods you can use to build up your FICO score, you can move toward becoming a homeowner. Keep in mind 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 achieve home ownership.
To learn more, visit 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.