How's Your FICO?
Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet starts the home buying process. Without an above average FICO score, purchasing a house is more difficult and, you could end up renting longer than you expected in Edmond until your score improves.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. Most people usually have a score of 600, but scores are tiered from 300 to 850. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is just that and often means you can't get a decent interest rate. Some of the pieces in reviewing your FICO score are:
- 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 find that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. This means you have three scores, one for each scoring model.
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 credit score gives lenders a view of what type of borrower you'd be based solely on 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 less than that, you can still qualify for a loan, but the interest accumulated over the life of the loan could be more than double that of an individual having a stronger FICO score.
Staying on top of your FICO score is the first step in purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
There are plans to increase your score. Building your FICO score takes time. It can be rare to make a significant change in your number with quick fixes, 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. You'll improve your credit score by using these pointers:
- 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 maxed out 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 majority of your debt sitting on a single card.
- Department store cards and gas station cards. For those who have no credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to get credit, increase your spending limits and have a solid payment history, which will raise your credit. You should always beware of holding a large balance for more than a couple of months because these types of cards more than likely have a higher interest rate.
- Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts stay active. But, be sure to pay them off in no more than two or three payments.
- Stay on top of payments. Payment history is a big factor in 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 able to make payments to a bank.
- Ensure that your credit history is correct. If you find incorrect items 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 pay extra attention to make sure the activity reported is correct.
Knowing the methods you can use to build up your FICO score, you can move toward becoming a homeowner. Remember that when you're ready 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 Metro First Realty, shopping for a mortgage is sure to go more smoothly 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.