Scoring Your FICO
The home buying process doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process begins with your finances. To become a homeowner, considering your credit score is a must along with the type of lender for which you'll qualify in Tucumcari.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people normally having a score of 650. 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 a loan. Some of the factors in deciding your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many late payments have you made?
- 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?
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 credit score gives lenders an insight into 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 740 or higher to get an acceptable interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest accumulated in the long run could be more than double that of an individual with a stronger credit score.
Staying on top of your FICO score is the first step in buying a home. Call us at 575 461-2100 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 rare to make a significant stride change in your number with small changes, but your score can improve in a few years by keeping tabs 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:
- Stay on top of payments. How often you're late with payments greatly affects your credit score. It's one of the reasons people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to restore your credit this way, but it's the surest way to prove that you're able to make payments to a bank.
- Ensure that your credit history is correct. If you discover 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 give extra care to make sure the activity reported is correct.
- Even out your debt. 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 your remaining cards at a zero balance. It's better to have each of your cards at a lower balance than to have all of your debt transferred to a single card.
- Retail cards and service station cards. For those who have no credit or low credit, store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and have a solid payment history, which will raise your FICO score. You should always avoid holding a large balance for more than a couple of billing cycles because these types of cards normally have a larger 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 stay active. But, be sure to pay them off in one or two payments.
Knowing the ways you can improve your FICO score, you can move toward becoming a homeowner. Know that when it's time to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of McElroy & Associates, the loan application process is sure to go more smoothly so you, too, can become a homeowner.
Get more information by visiting 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.