FICO – The First Step to Owning
T
he home buying process doesn’t start with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process starts and ends with your finances. Without an acceptable FICO score, entering into a loan for a house is harder and, you could find yourself renting for another couple of years in Glens Falls until your score improves.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 600, but scores range 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 extended to you via a mortgage loan. Some of the pieces in reviewing your FICO score include:
- Payment History — How many late payments have you made?
- 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?
Lenders want to ensure that allowing you a loan is a safe move. Your FICO score gives lenders an 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 an acceptable 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 having a superior FICO score. Generally, the higher your score, the less risk for the lender and the better mortgage rate you will have.
Staying on top of your FICO score is the first step in buying a home. Call us at (518) 210-7897 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 hard to make a large-scale change in your FICO score with small changes, 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. Here are some ways you can improve your credit score:
- Ensure that your credit history is correct. If you discover mistakes
on your credit report, contact 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 sound like a good idea. But, you want to avoid of having one card that is holding the maximum 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 the bulk of your debt sitting on a single card.
- Store cards and service station cards. For those who have no credit or less-than-stellar credit, store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and have a solid payment history, which will raise your FICO score. You should always avoid holding a large balance for too long because these types of cards normally have a surprising interest rate.
- Don’t let your cards get dusty. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, be sure to pay them off in no more than two or three payments.
- Stay on top of payments. How often you’re late with payments greatly affects your credit score. It’s where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit this way, but it’s the surest way to prove that you’re responsible enough to make payments to a bank.
Knowing the ways you can build up 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 Levack Real Estate, Inc., the loan process can be a stress-free experience so you, too, can become a homeowner.
Learn more about FICO scores at 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.