Ways to Improve Your FICO Score for Home Buying
Most people assume 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 begins and ends with your finances. Without a reasonable FICO score, purchasing a house is harder and, you could end up renting longer than you expected in Vista, California until you build up your score.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people traditionally have a score of 650, but scores range from 300 to 850. 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 decent interest rate. Some of the factors in calculating your FICO score are:
- Credit to Debt Ratio — How much do you owe versus your available credit?
- 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?
Lenders want to be positive that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you'll be based solely on your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest paid over time could be more than double the amount of someone having a better credit score.
Getting your credit in order is the first step in owning a home. Call us at 760-727-3776 and we can help you get on the right track to the home of your dreams.
You want a better score, but how do you get there? Building your FICO score takes time. It can be difficult to make a significant change in your number with quick fixes, but your score can improve in a year by monitoring your credit report and by using your credit wisely. The best way to do this 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 seem like a good idea. But, you don't want to have 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 a smaller balance than to have the bulk of your debt transferred to one card.
- Apply for service station cards or chain store credit. For those who have no credit or low credit, retail credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and have a solid payment history, which will raise your credit. You must always beware of keeping a high balance for too long because these types of cards more than likely have a surprising interest rate.
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts stay active. But, pay them off in no more than two or three payments.
- Stay on top of payments. Delinquent payments drastically lower 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 lender.
- Correct your credit report. If you find mistakes on your credit report, contact the bureau asking 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.
Knowing the ways you can 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 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, the loan process can be a stress-free experience so you, too, can achieve home ownership.
Learn more about FICO scores at 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.