Scoring Your Credit - How's Your Credit Score
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 starts with your finances. To propel your dreams of homeownership forward, you must consider your FICO score along with the type of mortgage loan for which you'll qualify in Mineral Wells, Texas.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 600, but scores are tiered from 300 to 850. Since we've experienced an economic downturn, however, some people have seen their score drop by hundreds of points after unemployment, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in reviewing your FICO score include:
- 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 often do you make late payments?
- Credit to Debt Ratio — How much do you owe versus your available credit?
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 a view of what type of borrower you are based solely on your credit history. You'll need a score of at least 740 to get a acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest paid over the life of the loan could be more than double the amount of someone with a better credit score.
Staying on top of your FICO score is the first step in buying a home. Call us at (940) 325-2006 and we can help you get on the right track to the home of your dreams.
How do you obtain a better score? Improving your FICO score takes time. It can be difficult to make a significant stride change in your credit score with quick fixes, but your score can improve in a year by monitoring 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:
- Even out your debt. 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 bulk of your debt transferred to one card.
- Apply for gas station cards or retail credit. For those who have non-existent credit or below average credit, chain store credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and have a solid payment history, which will raise your FICO score. You should always avoid carrying a large balance for more than a couple of billing cycles because these types of cards more than likely have a larger interest rate.
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts stay active. But, be sure to pay them off in no more than two or three payments.
- Keep up with payments. Your FICO score plummets with each account that goes to collections. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to build up your credit this way, but it's the most reliable 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, 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.
Now that you're better 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 you're ready to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of Ender & Associates Realty, shopping for a mortgage is sure to go more smoothly so you, too, can achieve home ownership.
Get more information by visiting 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.