Home buyer's Guide to Better Credit
You might think that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. The quality of your wallet begins the home buying process. Saving your money for a down payment is great, but if you don't have a strong credit score to reinforce it, you could find yourself renting longer than you expected in Burleson, Texas until your score improves.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. Most people traditionally have a score of 600, but scores are tiered from 300 to 850. Even though more people these days are experiencing job loss and delinquent credit cards, FICO scores aren't necessarily adjusted "on a curve." A low score is just that and often means you can't get credit. Some of the pieces in summing up your FICO score are:
- 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 — How many late payments have you made?
- 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 systems to calculate 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 bureau.
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 an insight into what type of borrower you are based solely on your credit history. You'll need a score of at least 700 to get a decent interest rate. You'll still get approved for a mortgage loan with a lower score, but the interest paid in the long run could be more than double that of an individual having a higher credit score.
Getting your credit in order is the first step in owning a home. Call us at (817) 744-8300 and we can help you get on the right track to the home of your dreams.
You want a better score, but how do you get it? Improving your FICO score takes time. It can be difficult to make a significant change in your FICO score 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. Here are some ways you can improve your credit score:
- Stay on top of payments. Payment history is a big factor in your credit score. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the most reliable way to show that you're able to make payments to a bank.
- Ensure that your credit history is correct. If you discover 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 give extra care to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you steer clear of having one card that is at the limit and have the rest of your 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 a single card.
- Apply for service station cards or department store credit. For those who have no credit or low credit, retail credit cards and gas credit cards are ways to obtain credit, increase your spending limits and keep up your payments, which will raise your credit. You must always avoid charging a high balance for too long because these types of cards more than likely have a surprisingly high interest rate.
- Keep your cards active. 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 stay active. But, pay them off in one or two payments.
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. Keep in mind that when you're ready to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Top Texas Realty, shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
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.