FICO - The First Step to Owning
You might think that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. The content of your wallet begins the home buying process. To realize your goal of owning a home, you must consider your FICO score along with the type of loan for which you'll qualify in Wilkes County, North Carolina.
A FICO score is a review 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. 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 a low score and that often means you can't get credit. Some of the factors in summing up your FICO score include:
- 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 credit cards and loans?
- Payment History — Do you pay your bills on time every month?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
In reviewing your credit history, you'll discover 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. If you've ever purchased something on credit, you DO have a credit score with all three of the bureaus, whether you know it or not.
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your credit (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 740 to get the best interest rate. You can get approved for a mortgage loan with a lower score, but the interest accrued over the life of the loan could be more than double that of someone with a stronger FICO score.
We still have people who don't use credit, so they have no credit history. We see this more in younger buyers, because they may not yet have credit cards in their name, may have not made a large purchase, such as a car, on credit. Having the cash you need to handle your needs is admirable, but without some credit you, you don't have a credit history, which can be equally as limiting with lenders as having a low credit score. It's always a good idea to open some type of credit, that reports to credit bureaus. So ask, when applying, if they report to credit bureaus. Most credit cards from a bank do report. Now, the key to this working is that you limit the amount of credit you use. Make small purchases and pay it off every month - EARLY. If you're ever late on a payment, it will likely lower what credit score you have. Following this plan for all your credit, will help your credit score climb and stay high. Then, when you apply for a loan for something like a home or vehicle, the lender will note your excellent credit history. More suggestions are below.
Improving your FICO score is the best way to ease into purchasing a home. Call me at 336-984-0226 and I can help you get on the right track to the home of your dreams.
There are methods to improve your score. Improving your FICO score takes time. It can be difficult to make a significant stride change in your FICO score with small changes, but your score can improve in a few years 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 seem like a good idea. But, you want to avoid 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 an even balance than to have the majority of your debt transferred to a single card.
- Department Store cards and service station cards. For those who have no credit or low credit, chain store credit cards and gas credit cards are ways to get credit, increase your spending limits and stay on top of your payments, which will raise your credit. You must always beware of maintaining a large balance for too long because these types of cards more than likely have a larger interest rate.
- Keep your cards active. 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, be sure to pay them off in one or two payments.
- Pay on time. 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 build up your credit with payment history, but it's the surest 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, contact 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.
Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to home ownership, and that is improving your FICO score. Know that when you're ready to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With our help, shopping for a mortgage is sure to go more smoothly so you, too, can achieve home ownership.
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 FICO scores and can help you settle into home ownership with the best mortgage lender for you. E-mail me at firstname.lastname@example.org or call 336-984-0226 for more information.