How's Your FICO?
Most people assume that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. The quality of your wallet starts the home buying process. To make your goal of homeownership realized, considering your credit score is a must along with the type of loan for which you'll qualify in Troy, Vermont.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people traditionally 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 a decent interest rate. Some of the pieces in deciding your FICO score are:
- 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?
- Payment History — How many late payments have you made?
In reviewing your credit history, you'll find 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. You have a credit score with all of the bureaus.
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your FICO 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 700 to get a acceptable interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued over time could be more than double that of someone with a stronger credit 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.
How do you obtain a stronger score? Improving your FICO score takes time. It can be difficult to make a significant stride change in your number with quick fixes, but your score can improve in a year or two by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Keep up with payments. Payment history is a huge factor in 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 most reliable way to show that you're responsible enough to make payments to a bank.
- Correct your credit report. If you find incorrect items on your credit report, write to 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 want to avoid 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 less than 40% of their credit limit than to have all of your debt sitting on one card.
- Apply for gas station cards or chain store credit. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to begin your credit history, increase your credit limits and stay on top of your payments, which will raise your credit. You should always avoid holding 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 have older cards, or are just getting started with credit, be sure to use your cards so that your accounts stay active. But, pay them off in one or two payments.
Knowing the methods you can use to build up your credit 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 applications within a two-week window to avoid adverse effects on your credit score. With the help of Big Bear Real Estate, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
Learn more about FICO scores at myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.