Scoring Your Credit
You might think that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process starts and ends with your finances. Without an above average credit score, purchasing a house is more difficult and, you could find yourself renting for another couple of years in Columbus, Nebraska until you raise your score.
The Fair Isaac Company bases 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. 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 a loan. Some of the factors in deciding your FICO score are:
- Credit to Debt Ratio — How much do you owe versus your available credit?
- 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 late payments have you made?
When you pull your credit report, 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 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.
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. You'll still get approved for a mortgage with a lower score, but the interest accrued over time could be more than double that of an individual with a stronger credit score.
Getting your credit in order is the first step in purchasing a home. Call me at 402-562-8244 and I can help you get on the right track to the home of your dreams.
You want a better score, but how do you get there? Building your FICO score takes time. It can be difficult to make a significant stride change in your number with quick fixes, but your score can improve in a year 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:
- Chain Store cards and gas station cards. For those who have no credit or low credit, chain store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and keep up your payments, which will raise your credit. You should always beware of holding a large balance for too long because these types of cards more than likely have a surprising interest rate.
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Pay on time. Your credit score plummets with every account that goes to collections. 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 rebuild your credit this way, but it's the surest way to prove that you're able to make payments to a bank.
- Correct your credit report. 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 pay extra attention to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you steer clear of having one card that is holding the maximum 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 the majority of your debt sitting on one card.
Now that you're more informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Know that when you're ready to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid a negative mark on your credit score. With the help of C.S. Nelson Co. Real Estate, shopping for a mortgage can be a stress-free experience so you, too, can become a homeowner.
Get more information by visiting www.myFICO.com, Fair Isaac's informational site and review your credit history for free 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.
I won't judge you based on your credit history and can help you settle into home ownership with the best lender for you. E-mail me at firstname.lastname@example.org or call 402-562-8244 for more information.