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 begins and ends with your finances. To become a homeowner, considering your credit score is a must along with the type of loan for which you'll qualify in Oviedo.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people usually have a score of 650, but scores range from 300 to 850. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is just that and often means you can't get a loan. Some of the pieces in reviewing your FICO score are:
- 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?
- Credit Inquiries — Do you have too many open accounts?
In reviewing your credit history, you'll find that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each scoring model.
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 FICO score gives lenders an insight into what type of borrower you are solely because of your credit history. You'll need a score of at least 700 to get a decent interest rate. You'll still get approved for a mortgage with a lower score, but the interest accumulated in the long run could be more than double that of someone having a superior credit score.
We're used to working with all levels of credit history. 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 it? Improving your FICO score takes time. It can be rare to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The most important thing 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 steer clear of having one card that is holding the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at a smaller balance than to have all of your debt transferred to one card.
- Department store cards and service station cards. For those who have non-existent credit or below average credit, store credit cards and gas credit cards are ways to improve credit, increase your credit limits and stay on top of your payments, which will raise your FICO score. You must always avoid maintaining a large balance for more than a couple of months because these types of cards traditionally have a surprisingly high interest rate.
- Keep your cards active. 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.
- Pay on time. Delinquent payments drastically lower your credit score. It's where people who have recently experienced job loss see the biggest hit 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.
- 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 pay extra attention to make sure the activity reported is correct.
Now that you know more about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Know that when it's time to apply for a loan to purchase a home, 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 Commercial, Homes & Land, Inc., the loan process is sure to go more smoothly so you, too, can achieve home ownership.
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.