Scoring Your Credit - How's Your FICO?
You might think 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 with your finances. To propel your dreams of homeownership forward, considering your credit score is a must along with the type of mortgage loan for which you'll qualify in Tucumcari, New Mexico.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with most people traditionally having a score of 600. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get credit. Some of the factors in summing up your FICO score are:
- Payment History — Do you pay your bills on time ?
- 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?
In reviewing your credit history, you'll see 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. As a result, you have three scores, one for each bureau.
Lenders want to be positive that allowing you a loan is a safe move. Your credit score gives lenders an insight into what type of borrower you'd be based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get a decent interest rate. You'll still get approved for a mortgage with a lower score, but the interest accrued over the life of the loan could be more than double the amount of an individual having a superior credit score.
Staying on top of your FICO score is the first step in purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
How do you obtain a higher score? Improving your FICO score takes time. It can be rare to make a large-scale change in your FICO score with small changes, but your score can improve in a year or two by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Apply for gas cards or store credit. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and keep up your payments, which will raise your credit. You must always avoid holding a large balance for more than a couple of months because these types of cards normally have a higher 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 so that your accounts maintain an active status. But, pay them off in one or two payments.
- 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 hit in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the surest way to prove that you're responsible enough to make payments to a lender.
- Correct your credit report. If you discover incorrect items on your credit report, write to 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 give extra care 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 at the limit and have your remaining cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have the most of your debt sitting on one card.
Now that you know more about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Keep in mind that when it's time to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid damaging your credit score. With the help of McElroy & Associates, the loan application 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 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.