Scoring Your Credit
Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet begins the home buying process. Without a reasonable FICO score, purchasing a house is harder and, you could end up renting longer than you expected in Naples, Florida until your FICO score is acceptable.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people usually have a score of 600, but scores range from 300 to 850. With the change in the economy, however, some people have seen their score drop dramatically as a result of job loss, delinquent credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in calculating your FICO score are:
- Payment History — How many months do you make late payments?
- 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 ensure that allowing you a loan isn't a risk for them. Your credit score gives lenders an insight into what type of borrower you'd be 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 less than that, you can still qualify for a loan, but the interest accumulated over time could be more than double that of an individual with a stronger FICO 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.
There are plans to raise your score. Building your FICO score takes time. It can be rare to make a large-scale change in your credit score with small changes, but your score can improve in a year or two by keeping tabs your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- Spread your debt around. 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 less than 40% of their credit limit than to have the majority of your debt transferred to one card.
- Apply for gas station cards or store credit. For those who have no credit or below average credit, chain 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 should always avoid carrying a large balance for more than a couple of billing cycles because these types of cards usually have a higher interest rate.
- 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 so that your accounts maintain an active status. But, be sure to pay them off in no more than two or three payments.
- Keep up with payments. Late payments hurt your credit history. It's one of the reasons people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit with payment history, 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 incorrect items 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 pay extra attention to make sure the activity reported is correct.
Knowing the ways you can improve your credit score, you can move toward becoming a homeowner. Know that when you're ready to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid a negative mark on your credit score. With the help of Metro Properties, shopping for a mortgage 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 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.