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Scoring Your Credit - How's Your FICO?
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts 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 longer than you expected in Beverly Hills, California until your score improves.
A FICO score is a review 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 normally having a score of 650. In recent years, however, some borrowers have seen their score lowered after job loss, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in determining your FICO score include:
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
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 determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. You have a credit score with all of the bureaus.
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. 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. You can qualify for a mortgage with a lower score, but the interest paid over time could be more than double the amount of an individual having a near perfect FICO score.
Staying on top of your FICO score is the best way to ease into purchasing a home. Contact us
and we can help you get on the right track to the home of your dreams.
There are plans to boost your score. Building your FICO score takes time. It can be difficult to make a significant stride change in your FICO score with quick fixes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- 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 stay active. But, be sure to pay them off in no more than two or three payments.
- Keep up with payments. How often you're late with payments greatly affects your credit score. It's where people who have recently been unemployed see the biggest dip 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 discover mistakes on your credit report, contact 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.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you steer clear of having one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at about 30% of their credit limit than to have all of your debt taking up the balance one card.
- Apply for service station cards or chain store credit. For those who have no credit or below average credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and keep up your payments, which will raise your FICO score. You must always avoid holding a large balance for too long because these types of cards normally have a steeper interest rate.
Knowing the methods you can use to build up your credit score, you're one step closer to becoming a homeowner. Keep in mind that when it's time to apply for a loan to purchase a house, you'll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of Wish Sotheby's International Realty, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit www.myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.
We work with all tiers of credit scores and can help you get back into home ownership with the best mortgage lender for you. E-mail us at email@example.com or call 818.516.0011 for additional information.