How's Your FICO?
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet starts the home buying process. To become a homeowner, considering your credit score is a must along with the type of mortgage loan for which you'll qualify in Park City.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people traditionally have a score of 650, 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 a low score and that often means you can't get credit extended to you via a mortgage loan. Some of the factors in summing up 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 credit cards and loans?
- Payment History — How many late payments have you made?
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 FICO score gives lenders an insight into what type of borrower you'll be solely because of your credit history. You'll need a score of at least 700 to get a acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest paid in the long run could be more than double that of an individual with a superior credit score.
We're used to working with all levels of credit history. Call us at 435-649-5551 and we can help you get on the right track to the home of your dreams.
There are strategies to raise your score. Building your FICO score takes time. It can be hard to make a significant change in your FICO score with quick fixes, but your score can improve in a year by keeping tabs your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. Here are some ways you can improve your credit score:
- 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 give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't seem like a good idea. But, you steer clear of having 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 bulk of your debt taking up the balance a single card.
- Apply for gas station cards or chain store credit. For those who have no credit or low credit, store credit cards and gas credit cards are ways to improve credit, increase your spending limits and keep up your payments, which will raise your credit. You should always avoid charging a large balance for too long because these types of cards usually have a steeper interest rate.
- Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts maintain an active status. But, make sure you pay them off in no more than two or three payments.
- Keep up with payments. Payment history is a big factor in your FICO score. It's one of the reasons people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to restore your credit this way, but it's the most reliable way to show that you're able to make payments to a lender.
Now that you're more informed about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Remember that when it's time to apply for a loan to purchase a home, 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 Brown & Company of Park City, Inc., the loan application process is sure to go more smoothly so you, too, can become a homeowner.
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.