You might think that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet begins the home buying process. Without an above average credit score, buying a house is more difficult and, you could end up renting for another couple of years in Hennepin County until your FICO score is acceptable.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 650, but scores range from 300 to 850. Since we've experienced an economic downturn, however, some people have seen their score lowered as a result of unemployment, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in calculating your FICO score include:
- Credit Inquiries — Do you have too many open accounts?
- 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 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 insight into 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 can qualify for a mortgage with a lower score, but the interest paid over the life of the loan could be more than double that of someone having a stronger credit score.
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Staying on top of your FICO score is the first step in buying a home. Contact us and we can help you get on the right track to the home of your dreams. |
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You want a better score, but how do you get there? Improving your FICO score takes time. At Incentive Realty, we know it's hard to make a large-scale change in your number with quick fixes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Even out your debt. At first, this doesn't sound like a good idea. But, you want to avoid of having one card that is holding the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at a smaller balance than to have the bulk of your debt transferred to a single card.
- Apply for gas cards or retail credit. For those who have no credit or low credit, retail credit cards and gas credit cards are ways to repair credit, increase your credit limits and stay on top of your payments, which will raise your credit. Simply beware of holding a too-high balance for too long because these types of cards traditionally have a larger interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Keep up with payments. How often you're late with payments greatly affects your credit score. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to build up your credit with payment history, but it's the most reliable way to prove that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. If you discover incorrect items 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.
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Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to homeownership, 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 credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of Incentive Realty, the loan application process is sure to go more smoothly so you, too, can become a homeowner.
To learn more, visit www.myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.
At Incentive Realty we work with all levels of credit and can help you step into home ownership with the best mortgage lender for you. E-mail us at jim@movesoon.net or call (877)MOVE651 for additional information.
