Increasing Your FICO Score for Home Buying
Most people assume that the home buying process starts 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 an above average FICO score, buying a house is harder and, you could end up renting longer than you expected in Naples, Florida until your FICO score is acceptable.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people traditionally have a score of 650, but scores range from 300 to 850. In recent years, however, some people have seen their score drop dramatically because of job loss, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in calculating your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- 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?
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 a view of what type of borrower you'll 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 an acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest accrued in the long run could be more than double that of someone with a higher credit score.
We're used to working with all tiers 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 improve your score. Improving your FICO score takes time. It can be difficult to make a large-scale change in your credit 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. You'll improve your credit score by using these tips:
- Ensure that your credit history is correct. 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.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you steer clear of having one card that is at the limit and have your remaining 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.
- Apply for service station cards or department store credit. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to get credit, increase your spending limits and have a solid payment history, which will raise your FICO score. You must always beware of maintaining a high balance for more than a couple of billing cycles because these types of cards more than likely have a surprisingly high interest rate.
- Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Pay on time. Payment history is a big factor in your FICO score. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the most reliable way to show that you're able to make payments to a lender.
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 house, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Metro Properties, the loan application process is sure to go more smoothly 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.