Raising Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet begins the home buying process. To become a homeowner, considering your credit score is a must along with the type of loan for which you'll qualify in Park City, Utah.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people usually have a score of 650, but scores are tiered from 300 to 850. In recent years, however, some people have seen their score drop dramatically after loss of employment, charged off credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in determining your FICO score include:
- 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 your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
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 systems to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each bureau.
Lenders want to ensure that allowing you a loan isn't a risk for them. Your FICO score gives lenders a view of what type of borrower you are based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated in the long run could be more than double that of an individual with a stronger FICO 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 improve your score. Building your FICO score takes time. It can be rare to make a large-scale change in your number with quick fixes, but your score can improve in a year by keeping tabs your credit report and by using your credit wisely. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts maintain an active status. But, be sure to pay them off in no more than two or three payments.
- Pay on time. Your FICO score plummets with each account that goes to collections. It's one of the reasons people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to restore your credit this way, but it's the surest way to show that you're responsible enough to make payments to a lender.
- Correct your credit report. If you discover incorrect items 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 pay extra attention 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 holding the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at a smaller balance than to have the majority of your debt sitting on one card.
- Apply for gas cards or retail credit. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and have a solid payment history, which will raise your FICO score. You should always avoid charging a large balance for more than a couple of billing cycles because these types of cards more than likely have a larger interest rate.
Knowing the methods you can use to build up your FICO score, you can move toward becoming a homeowner. Remember 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 a negative mark on 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 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.