Most people assume that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet begins the home buying process. 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 end up renting longer than you expected in Berrien County until you build your score.
A FICO score is a review 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. In recent years, however, some borrowers have seen their score drop dramatically because of loss of employment, charged off credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in deciding your FICO score include:
- Payment History - The record of your on-time and late payments. (35%)
- Amounts Owed: Your credit limit minus the amount you owe for each account also known as Credit to Debt Ratio (30%)
- Length of History - The average length of time of all open accounts (15%)
- Credit Inquiries - How many times has your credit history been accessed by someone other than you? i.e. new account openings for purchases or credit card applications (10%)
- Types of Credit - Mortgages, installment loans, revolving accounts etc. Do you have a healthy mix of loans and credit cards? (10%)
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 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 700 or higher to get a decent interest rate. If your score is less than that, you can still qualify for a loan, but the interest paid in the long run could be more than double that of someone having a stronger credit score.
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Improving your FICO is the first step in buying a home. Call me at (269) 930-7355 and I can help you get on the right track to the home of your dreams. |
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How do you get a better score? Building your FICO score takes time. I know it's hard to make a significant stride change in your credit score with quick fixes, but your score can improve in a year by keeping tabs your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these pointers:
- Ensure that your credit history is correct. Review your credit report every year. 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.
- Even out your debt. At first, this doesn't sound like a good idea. But, you don't want to have one card that is at the limit and have the rest of your cards at a zero balance. It's better to have each of your cards at about 30% or less of their credit limit than to have the majority of your debt taking up the balance a single card. Keep 3-5 open and active accounts in good standing on your credit report.
- If you have no credit or less-than-stellar credit apply for gas cards or department store credit. Store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and stay on top of your payments, which will raise your credit. Just beware of carrying a too-high balance for more than a couple because these types of cards more than likely have a surprising interest rate. However, if you already have too many accounts open with high balances, you should not open anymore accounts and pay down the accounts you have to 30% or less than the limit on the account.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts stay active. But, pay them off in one or two payments.
- Stay on top of payments. Make payments on time, especially to installment and revolving accounts, as these report to the bureaus monthly. Your FICO score plummets with every account that goes to collections. 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 restore your credit with payment history, but it's the most reliable way to show that you're responsible enough to make payments to a lender.
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Knowing the ways you can improve your credit score, you're one step closer to becoming a homeowner. Keep in mind that when you're ready to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid damaging your credit score. With my help, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
Get more information by visiting www.myFICO.com, Fair Isaac's informational site and review your credit history for free at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.
I do not judge you based on your credit scores and can help you step into home ownership with the right lending insitution for you. E-mail me at Brenda@brendaregan.com or call (269) 930-7355 for additional information.
