First-Time Buyer's Guide to Better Credit
You might think that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet starts the home buying process. Without an acceptable credit score, buying a house is more difficult and, you could find yourself renting for another couple of years in Troy until your score improves.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people usually have a score of 650, but scores are tiered 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 a low score and that often means you can't get credit extended to you in the form of a mortgage loan. Some of the factors in determining your FICO score are:
- Payment History — Do you pay your bills on time ?
- 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?
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. Your credit score gives lenders an insight into what type of borrower you are based solely on your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued in the long run could be more than double that of an individual with a near perfect FICO score.
Improving your credit is the best way to ease into purchasing a home. Call us at 802-744-6844 and we can help you get on the right track to the home of your dreams.
You want an improved score, but how do you get it? Building your FICO score takes time. It can be difficult to make a large-scale change in your credit score with quick fixes, but your score can improve in a few years by keeping tabs your credit report and by using your credit wisely. The most important thing is to know your FICO score. You'll improve your credit score by using these tips:
- Even out your debt. At first, this doesn't sound like a good idea. But, you steer clear of having one card that is maxed out and have the rest of your cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have the bulk of your debt sitting on one card.
- Apply for gas cards or retail credit. For those who have no credit or less-than-stellar credit, store credit cards and gas credit cards are ways to repair credit, increase your credit limits and have a solid payment history, which will raise your FICO score. You must always avoid keeping a large balance for more than a couple of billing cycles because these types of cards normally have a surprising interest rate.
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts maintain an active status. But, pay them off in one or two payments.
- Pay on time. Late payments hurt your FICO score. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the surest way to show that you're able to make payments to a lender.
- Correct your credit report. If you find incorrect items 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 pay extra attention to make sure the activity reported is correct.
Knowing the methods you can use to raise 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 home, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Big Bear Real Estate, the loan process can be a stress-free experience so you, too, can achieve home ownership.
Get more information by visiting 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.