Ways to Improve Your FICO Score for Home Buying
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet begins the home buying process. Without a reasonable credit score, entering into a loan for a house is harder and, you could end up renting longer than you expected in Encinitas, California until you improve your score.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. Most people usually have a score of 600, but scores range from 300 to 850. With the change in the economy, 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 factors in reviewing your FICO score are:
- 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?
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
Lenders want to be positive that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of what type of borrower you are solely because of your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. You can qualify for a mortgage with a lower score, but the interest accrued over time could be more than double the amount of someone having a near perfect FICO score.
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You want a higher score, but how do you get it? 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 year by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Correct your credit report. If you discover incorrect items 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 give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't sound like a good idea. But, you don't want to have one card that is at the limit and have the rest of your 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 most of your debt sitting on a single card.
- Department Store cards and service station cards. For those who have no credit or below average credit, store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and keep up your payments, which will raise your FICO score. You should always avoid charging a large balance for too long because these types of cards usually have a higher interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Stay on top of payments. Delinquent payments instantly lower your credit score. It's where people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to restore your credit this way, but it's the most reliable way to prove that you're able to make payments to a bank.
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 house, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Sanborn Financial, the loan application process is sure to go more smoothly so you, too, can become a homeowner.
Learn more about FICO scores at www.myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.
I won't judge you based on your FICO scores and can help you step into home ownership with the best lender for you. E-mail me at firstname.lastname@example.org or call (760) 943-7200 for additional information.