How's Your Credit?
The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process begins with your finances. To realize your goal of owning a home, you must consider your FICO score along with the type of mortgage loan for which you'll qualify in Sherman Oaks.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people usually have a score of 600, but scores are tiered from 300 to 850. With the change in the economy, however, some people have seen their score drop dramatically after underemployment, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in determining 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 — Do you pay your bills on time every month?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. Your FICO score gives lenders a view of what type of borrower you'd be solely because of your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. You'll still get approved for a loan with a lower score, but the interest paid over time could be more than double that of someone with a better credit score.
We're used to working with all tiers of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.
There are strategies to boost your score. 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 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 methods to improve your credit score:
- 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 the rest of your 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 majority of your debt taking up the balance a single card.
- Chain store cards and gas cards. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to repair credit, increase your credit limits and keep up your payments, which will raise your credit. You must always beware of maintaining a large balance for too long because these types of cards traditionally have a steeper interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts maintain an active status. But, be sure to pay them off in one or two payments.
- Keep up with payments. How often you're late with payments greatly affects 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 build up your credit this way, but it's the surest way to show that you're able to make payments to a lender.
- 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.
Knowing the methods you can use to build up your FICO score, you're one step closer to becoming a homeowner. Remember 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 adverse effects on your credit score. With the help of Charise Michell, Estate Agent, Wish Sotheby’s International Realty, CalBRE#01425090, the loan process is sure to go more smoothly 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.