Scoring Your Credit
The home buying process doesn't start with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process begins with your finances. Without a reasonable credit score, entering into a loan for a house is harder and, you could find yourself renting for another couple of years in Cleveland, Mississippi until your score improves.
A FICO score is a review 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 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 decent interest rate. Some of the pieces in summing up your FICO score are:
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
Lenders want to be positive that giving you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you'd be solely because of your credit history. You'll need a score of at least 740 to get a decent interest rate. You'll still qualify for a loan with a lower score, but the interest paid over time could be more than double the amount of someone with a near perfect credit score.
Getting your credit in order is the best way to ease into purchasing a home. Contact us 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? Improving your FICO score takes time. It can be rare to make a significant stride change in your FICO score 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 most important thing is to know your FICO score. Here are some methods to 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 maxed out and have the rest of your cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have all of your debt transferred to one card.
- Retail cards and gas cards. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and keep up your payments, which will raise your FICO score. You should always beware of keeping a large balance for too long because these types of cards more than likely have a larger interest rate.
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts maintain an active status. But, be sure to pay them off in one or two payments.
- Keep up with payments. Late payments hurt your credit score. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to build up your credit with payment history, but it's the surest way to show that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. If you discover incorrect items 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 pay extra attention to make sure the activity reported is correct.
Knowing the ways you can improve your credit score, you're one step closer to 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 adverse effects on your credit score. With the help of Partnership Properties, the loan application 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 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.