How's Your Credit?
Most people assume that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet begins the home buying process. To make your goal of homeownership realized, you must consider your FICO score along with the type of loan for which you'll qualify in Vista.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people traditionally having a score of 600. With the change in the economy, however, some people have seen their score drop dramatically because of job loss, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in summing up your FICO score include:
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
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 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 three of the bureaus.
Lenders want to be positive that allowing you a loan is a safe move. Your FICO score gives lenders a view of 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 700 or higher 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 time could be more than double that of someone with a better FICO score.
We're used to working with all tiers of FICO scores. Call us at 760-727-3776 and we can help you get on the right track to the home of your dreams.
There are ways to improve your score. Building your FICO score takes time. It can be hard to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year or two by keeping tabs 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 helpful hints:
- Correct your credit report. 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 want to avoid of having one card that is at the limit and have the rest of your 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 transferred to a single card.
- Department store cards and service station cards. For those who have no credit or below average credit, department 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 must always avoid carrying a large balance for more than a couple of months because these types of cards usually have a surprisingly high interest rate.
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure 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 where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the surest way to show that you're able to make payments to a bank.
Knowing the ways you can build up your credit score, you can move toward becoming a homeowner. Remember that when it's time to apply for a loan to purchase a home, 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 Stoneridge Realty & Property Management Services, 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 you can review all of your credit reports for free each year 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.