Tips on Raising Your FICO Score for Home Buying
You might think that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process begins and ends with your finances. Putting back your money for a down payment is great, but if you lack an acceptable credit score to back it up, you could end up renting for another couple of years in Grand Prairie until your FICO score is acceptable.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people traditionally having a score of 600. In recent years, however, some people have seen their score drop by hundreds of points because of underemployment, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in determining your FICO score are:
- 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 ?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
Lenders want to ensure that giving you a loan is a safe move. Your credit score gives lenders an insight into what type of borrower you'll be solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get an acceptable 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 near perfect credit score.
We're used to working with all tiers of credit scores. Contact us and we can help you get on the right track to the home of your dreams.
You want a better score, but how do you get there? Building your FICO score takes time. It can be rare to make a significant change in your number 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 best way to do this is to know your FICO score. You'll improve your credit score by using these tips:
- Apply for gas station cards or chain store credit. For those who have non-existent credit or low credit, store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and stay on top of your payments, which will raise your FICO score. You must always beware of maintaining a large balance for more than a couple of billing cycles because these types of cards normally have a larger interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts maintain an active status. But, be sure to pay them off in one or two payments.
- Keep up with payments. Late payments kill your credit history. 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 build up your credit this way, but it's the surest way to show that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. If you find mistakes on your credit report, contact 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.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you want to avoid 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 an even balance than to have the majority of your debt sitting on one card.
Now that you're more informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Remember that when it's time to apply for a loan to purchase a house, 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 Target Cost Realty, LLC, shopping for a mortgage can be a stress-free experience so you, too, can become a homeowner.
To learn more, visit 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.