Scoring Your Credit - How's Your Credit Score
The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process begins with your finances. Without an acceptable FICO score, buying a house is more difficult and, you could find yourself renting for another couple of years in Naples until your score improves.
A FICO score is a collection 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 600. With the change in the economy, however, some borrowers have seen their score lowered 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 include:
- 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 credit cards and loans?
- Payment History — Do you pay your bills on time ?
Lenders want to ensure that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you'd be solely because of your credit history. You'll need a score of at least 700 to get a acceptable interest rate. You can qualify for a mortgage loan with a lower score, but the interest accumulated over time could be more than double that of someone with a higher FICO score.
We're used to working with all levels of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.
How do you obtain a stronger score? Building 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 few years by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Pay on time. Delinquent payments drastically drop 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 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 mistakes 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 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 don't want to have 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 about less than 40% of their credit limit than to have the bulk 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, retail credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always beware of carrying a large balance for more than a couple of billing cycles because these types of cards more than likely have a higher interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.
Now that you're better informed about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Remember 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 a negative mark on 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.