First-Time Buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet begins the home buying process. To propel your dreams of homeownership forward, you must consider your FICO score along with the type of lender for which you'll qualify in Elizabethtown.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people normally having a score of 600. Job loss has been common in the last few years, but 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 factors in summing up your FICO score include:
- 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 credit cards and loans?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
When you pull your credit report, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each scoring model.
Lenders want to ensure that giving you a loan isn't a risk for them. Your credit score gives lenders an insight into what type of borrower you'll be solely because of 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 a satisfactory interest rate. You can qualify for a mortgage with a lower score, but the interest accumulated over time could be more than double the amount of someone having a higher credit score.
Staying on top of your FICO score is the best way to ease into purchasing a home. Contact us
and we can help you get on the right track to the home of your dreams.
There are ways to boost your score. Building your FICO score takes time. It can be hard to make a large-scale change in your FICO score with quick fixes, but your score can improve in a few years by keeping tabs 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. Here are some ways you can improve your credit score:
- Chain Store cards and gas cards. For those who have non-existent credit or below average credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and have a solid payment history, which will raise your credit. You should always avoid charging a high balance for too long 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 to make sure your accounts stay active. But, pay them off in one or two payments.
- Keep up with payments. Late payments hurt 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 restore your credit with payment history, but it's the most reliable way to prove that you're able to make payments to a lender.
- Correct your credit report. 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.
- 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 at the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at a smaller balance than to have the most of your debt sitting on a single card.
Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Keep in mind that when you're ready to apply for a loan to purchase a house, 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 Gold Star Realty, the loan process can be a stress-free experience so you, too, can achieve home ownership.
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.
We work with all tiers of credit history and can help you settle into home ownership with the right lender for you. E-mail us at firstname.lastname@example.org or call 270-765-3999 for additional information.