Scoring Your Credit - How's Your FICO?
The road to home ownership doesn't start with getting pre-approved by a lender or with choosing a real estate agent. The quality of your wallet starts the home buying process. Without a reasonable credit score, entering into a loan for a house is more difficult and, you could end up renting longer than you expected in Guerneville, California 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. 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 as a result of job loss, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in summing up your FICO score include:
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- 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 many months do you make late payments?
When you pull your credit report, 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 determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. As a result, you have three scores, one for each scoring model.
Lenders want to make sure 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 solely because of your credit history. You'll need a score of at least 740 to get a decent interest rate. You'll still get approved for a mortgage with a lower score, but the interest accrued over time could be more than double that of someone having a better credit score.
Staying on top of your FICO score is the first step in buying a home. Call us at 707-303-6358 and we can help you get on the right track to the home of your dreams.
There are strategies to boost your score. Improving your FICO score takes time. It can be hard to make a significant stride change in your credit score with small changes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. You'll improve your credit score by using these pointers:
- 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 hit in their credit score. Yes, it takes longer to restore your credit this way, but it's the most reliable way to prove that you're able to make payments to a lender.
- 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 pay extra attention to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you steer clear 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 a lower balance than to have the majority of your debt transferred to one card.
- Apply for gas cards or store credit. For those who have no credit or below average credit, department store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and keep up your payments, which will raise your FICO score. You must always beware of holding a high balance for too long because these types of cards traditionally have a higher interest rate.
- 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 so that your accounts maintain an active status. But, pay them off in no more than two or three payments.
Knowing the ways you can raise your FICO score, you can move toward becoming a homeowner. Keep in mind that when you're ready to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With the help of The City Country Group @ Vanguard Properties DRE# 01380792, the loan process can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.