FICO - The First Step to Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. Without a reasonable FICO score, buying a house is harder and, you could find yourself renting longer than you expected in Park City until your FICO score is acceptable.
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. 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 extended to you in the form of a mortgage loan. Some of the pieces in calculating your FICO score include:
- 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 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 are solely because of your credit history. You'll need a score of at least 700 to get a acceptable interest rate. You'll still get approved for a loan with a lower score, but the interest accrued over time could be more than double that of someone with a stronger FICO score.
We're used to working with all levels of credit scores. Contact us and we can help you get on the right track to the home of your dreams.
You want an improved score, but how do you get it? Building 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 year or two by monitoring 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. You'll improve your credit score by using these helpful hints:
- Spread your debt around. 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 your remaining cards at a zero balance. It's better to have each of your cards at about less than 40% of their credit limit than to have the most of your debt taking up the balance one card.
- Retail cards and service station cards. For those who have non-existent credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and stay on top of your payments, which will raise your credit. You must always beware of keeping a high balance for too long because these types of cards usually have a higher interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts maintain an active status. But, be sure to pay them off in no more than two or three payments.
- Stay on top of payments. Delinquent payments drastically drop your credit 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 responsible enough to make payments to a bank.
- 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 pay extra attention to make sure the activity reported is correct.
Knowing the methods you can use to raise your FICO score, you're one step closer to becoming a homeowner. Remember that when it's time to apply for a loan to purchase a home, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of Brown & Company of Park City, Inc., shopping for a mortgage is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.