Home buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. To make your goal of homeownership realized, you must consider your FICO score along with the type of mortgage loan for which you'll qualify in Orlando.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with the majority of people traditionally having a score of 650. With the change in the economy, however, some people 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 determining your FICO score are:
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many months do you make late payments?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
In reviewing your credit history, you'll find that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each scoring model.
Lenders want to ensure that allowing you a loan is a safe move. Your credit score gives lenders an insight into what type of borrower you'd be 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 less than that, you can still qualify for a loan, but the interest accrued over time could be more than double the amount of someone having a stronger FICO score.
We're used to working with all tiers of credit scores. Call us at (407) 996-3200 and we can help you get on the right track to the home of your dreams.
There are ways to boost your score. Improving your FICO score takes time. It can be rare to make a large-scale change in your credit score with quick fixes, but your score can improve in a year or two by keeping tabs your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.
- Stay on top of payments. How often you're late with payments greatly affects your credit score. It's one of the reasons people who have recently been unemployed 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 lender.
- Correct your credit report. If you find incorrect items on your credit report, write to the bureau requesting 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.
- Even out your debt. At first, this doesn't sound 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 about 30% of their credit limit than to have the majority of your debt taking up the balance a single card.
- Apply for gas station cards or chain store credit. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always avoid carrying a large balance for more than a couple of months because these types of cards more than likely have a larger interest rate.
Knowing the methods you can use to raise your FICO score, you can move toward becoming a homeowner. Know 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 RE/MAX Town Centre, the loan application process can be a stress-free experience so you, too, can achieve home ownership.
Learn more about FICO scores at 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.