Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet starts the home buying process. Without an above average credit score, purchasing a house is more difficult and, you could find yourself renting for another couple of years in NAPA, California until you raise your score.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people normally having a score of 600. Even though more people these days are experiencing job loss and delinquent credit cards, FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get a loan. Some of the pieces in calculating 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 — Do you pay your bills on time every month?
- Credit to Debt Ratio — How much do you owe versus your available credit?
In reviewing your credit history, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to calculate 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 three 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 risk. Your FICO score gives lenders insight into what type of borrower you'll be solely because of your credit history. You'll need a score of at least 740 to get a satisfactory 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 having a superior credit score.
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Getting your credit in order is the first step in buying a home. Contact us and we can help you get on the right track to the home of your dreams.
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You want a higher score, but how do you get there? Improving your FICO score takes time. At RD Team Realtors®, we know it's rare to make a significant stride change in your FICO score with small changes, but your score can improve in a year or two 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:
- Stay on top of 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 rebuild your credit with payment history, but it's the most reliable way to show that you're responsible enough to make payments to a lender.
- 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.
- 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 at the maximum and have your remaining 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 a single card.
- Apply for gas station cards or retail credit. For those who have non-existent credit or low credit, retail credit cards and gas credit cards are ways to obtain credit, increase your credit limits and stay on top of your payments, which will raise your FICO score. Just avoid keeping a high balance for too long because these types of cards traditionally have a higher interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.
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Knowing the ways you can raise your credit 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 damaging your credit score. With the help of RD Team Realtors®, the loan process is sure to go more smoothly so you, too, can achieve home ownership.
Learn more about FICO scores at www.myFICO.com, Fair Isaac's informational site and review your credit history for free 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.
At RD Team Realtors® we work with all tiers of credit scores and can help you settle into home ownership with the best lender for you. E-mail us at saljramos@gmail.com or call 707.968.7143 for more information.
