Home buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. Without an above average credit score, purchasing a house is harder and, you could end up renting for another couple of years in Edmond until you improve your score.
The Fair Isaac Company bases your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with the majority of people normally having a score of 650. 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 a loan. Some of the pieces in calculating your FICO score are:
- 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 credit cards and loans?
- Payment History — Do you pay your bills on time ?
Lenders want to make sure 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 decent 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 the amount of someone having a higher FICO score.
We're used to working with all tiers of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.
You want a higher score, but how do you get it? Building your FICO score takes time. It can be rare to make a significant stride change in your FICO score with small changes, but your score can improve in a year or two 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. You'll improve your credit score by using these helpful hints:
- Correct your credit report. If you discover mistakes 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.
- Even out your debt. At first, this doesn't sound like a good idea. But, you want to avoid of having 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 about less than 40% of their credit limit than to have all of your debt sitting on a single card.
- Retail cards and gas cards. For those who have no credit or below average credit, store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and keep up your payments, which will raise your FICO score. You must always avoid charging a large balance for more than a couple of months because these types of cards traditionally have a higher interest rate.
- Use your credit. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Keep up with payments. Payment history is a big factor in your FICO score. It's where people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to build up your credit with payment history, but it's the most reliable way to show that you're able to make payments to a lender.
Knowing the methods you can use to improve your FICO score, you're one step closer to becoming a homeowner. Keep in mind that when you're ready to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid damaging your credit score. With the help of Coldwell Banker Mike Jones Company, the loan application process can be a stress-free experience so you, too, can become a homeowner.
Get more information by visiting myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.