Scoring Your Credit - How's Your Credit Score

Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. Putting back your money for a down payment is a good idea, but if you lack an acceptable credit score to back it up, you could find yourself renting longer than you expected in Tucumcari until your FICO score is acceptable.

A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people traditionally have a score of 600, but scores are tiered 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 pieces in calculating your FICO score include:

• 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 late payments have you made?
• Credit to Debt Ratio — How much do you owe versus how much credit you have available?

When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your credit score gives lenders an insight into what type of borrower you are 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 a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest paid over the life of the loan could be more than double the amount of an individual with a better FICO score.

We're used to working with all levels of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.

There are plans to raise your score. Building your FICO score takes time. It can be difficult to make a significant 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 wisely using credit. The most important thing is to know your FICO score. You'll improve your credit score by using these pointers:

• Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts maintain an active status. But, make sure you pay them off in no more than two or three payments.
• Stay on top of payments. Delinquent payments drastically drop your credit score. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to build up 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 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 maximum 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 bulk of your debt sitting on a single card.
• Retail cards and gas station cards. For those who have non-existent credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to improve credit, increase your spending limits and have a solid payment history, which will raise your credit. You should always beware of charging a large balance for more than a couple of months because these types of cards usually have a larger interest rate.

Now that you're more informed 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 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.

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.