Scoring Your FICO

Choosing a lender isn’t the first step in becoming a homeowner. In reality, the home buying process starts with your finances. Saving your money for a down payment is great, but if you lack an acceptable credit score to reinforce it, you could end up renting longer than you expected in Quinton until you raise your score.

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 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 just that and often means you can’t get credit. Some of the factors in summing up your FICO score include:

• 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?
• Types of Credit — Do you have a healthy mix of loans and credit cards?
• Payment History — How many late payments have you made?

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 based solely on your credit history. You’ll need a score of at least 700 to get a acceptable interest rate. You can get approved for a loan with a lower score, but the interest paid over the life of the loan could be more than double that of someone with a near perfect FICO score.

There are methods to raise your score. Building your FICO score takes time. It can be rare to make a large-scale change in your number with quick fixes, but your score can improve in a few years by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. You’ll improve your credit score by using these pointers:

• Use your credit. 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 maintain an active status. But, pay them off in one or two payments.
• Pay on time. How often you’re late with payments greatly affects 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 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 mistakes on your credit report, contact 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 seem like a good idea. But, you steer clear of having one card that is maxed out and have your remaining cards at a zero balance. It’s better to have each of your cards at an even balance than to have all of your debt sitting on one card.
• Department Store cards and service station cards. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to improve credit, increase your credit limits and have a solid payment history, which will raise your FICO score. You should always avoid keeping a high balance for too long because these types of cards normally have a larger interest rate.

Knowing the ways you can build up your credit score, you’re one step closer to becoming a homeowner. Remember that when you’re ready to apply for a loan to purchase a home, you’ll want to keep your lender applications within a two-week window to avoid damaging your credit score. With the help of Home for Life Realty, LLC, the loan application process can be a stress-free experience so you, too, can become a homeowner.

To learn more, visit www.myFICO.com, Fair Isaac’s informational site and once per year, for free, you can review all three of your credit reports 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.