Scoring Your Credit
The home buying process doesn't start with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process starts with your finances. 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 Salisbury, North Carolina.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. 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 lowered because of unemployment, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in summing up your FICO score include:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — Do you pay your bills on time ?
- 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 be positive that allowing 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. 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. You'll still qualify for a mortgage with a lower score, but the interest accrued over the life of the loan could be more than double that of someone with a better FICO score.
We're used to working with all levels of credit scores. Call us at (704) 245-6184 and we can help you get on the right track to the home of your dreams.
How do you obtain a stronger score? Improving 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 or two by keeping tabs 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:
- Keep your cards in rotation. 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, be sure to pay them off in one or two payments.
- Stay on top of 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 rebuild your credit with payment history, but it's the surest way to prove that you're able to make payments to a bank.
- 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 give extra care to make sure the activity reported is correct.
- Even out your debt. 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 a lower balance than to have all of your debt taking up the balance one card.
- Department store cards and gas cards. For those who have no credit or low credit, department store credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and keep up your payments, which will raise your FICO score. You must always avoid holding a large balance for more than a couple of billing cycles because these types of cards usually have a higher interest rate.
Now that you know more about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Remember that when it's time to apply for a loan to purchase a home, 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 TMR Realty, Inc., 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 once per year, for free, you can review all three of your credit reports 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.