Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet starts the home buying process. Putting back your money for a down payment is a good idea, but if you don't have an acceptable credit score to back it up, you could end up renting for another couple of years in Park City, Utah until your FICO score is acceptable.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with the majority of people normally having a score of 650. Job loss has been common in the last few years, but 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 pieces in calculating your FICO score are:
- Payment History — How often do you make late payments?
- 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?
Lenders want to ensure that giving you a loan isn't a risk for them. Your FICO score gives lenders view of what type of borrower you'll be based solely on your credit history. You'll need a score of at least 700 to get a acceptable interest rate. You can get approved for a loan with a lower score, but the interest paid in the long run could be more than double the amount of an individual having a superior credit score.
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We're used to working with all tiers 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.
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There are methods to raise your score. Building your FICO score takes time. At Brown & Company of Park City Inc., we know it's rare to make a significant stride change in your credit score with small changes, but your score can improve in a year or two by keeping tabs your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Use your credit. 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, be sure to pay them off in one or two payments.
- Keep up with payments. Payment history is a big factor in your FICO score. It's where people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the surest way to show that you're able to make payments to a bank.
- Correct your credit report. If you find mistakes 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 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 don't want to have 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 about 25% of their credit limit than to have the bulk of your debt sitting on a single card.
- Chain Store cards and service station cards. For those who have non-existent credit or low credit, chain store credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and keep up your payments, which will raise your FICO score. Simply beware of carrying a high balance for too long because these types of cards more than likely have a surprising interest rate.
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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. Know that when you're ready to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid damaging your credit score. With the help of Brown & Company of Park City Inc., the loan application process can be a stress-free experience 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.
At Brown & Company of Park City Inc. we work with all levels of credit scores and can help you get back into home ownership with the best lending insitution for you. E-mail us at betty@buytheslopes.com or call 435-649-5551 for more information.
