Increasing Your FICO Score for Home Ownership
The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet begins the home buying process. To make your goal of homeownership realized, you must consider your FICO score along with the type of loan for which you'll qualify in Tampa.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. Most people traditionally have a score of 600, but scores are tiered from 300 to 850. In recent years, however, some people have seen their score lowered as a result of underemployment, charged off credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in determining your FICO score include:
- Payment History — How often do you make late payments?
- 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 loans and credit cards?
Lenders want to be positive that allowing you a loan is a safe move. Your FICO score gives lenders an insight into what type of borrower you'll be based solely on 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. You can get approved for a loan with a lower score, but the interest accumulated in the long run could be more than double the amount of someone having a superior FICO score.
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There are plans to improve your score. Improving your FICO score takes time. It can be difficult to make a significant change in your FICO score with small changes, but your score can improve in a year 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 at the limit and have your remaining cards at a zero balance. It's better to have each of your cards at an even balance than to have the bulk of your debt transferred to one card.
- Store cards and gas cards. For those who have non-existent credit or less-than-stellar credit, retail credit cards and gas credit cards are ways to start your credit history, increase your credit limits and stay on top of your payments, which will raise your credit. You should always beware of holding a high balance for more than a couple of billing cycles because these types of cards traditionally 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. Your credit score plummets with each account that goes to collections. It's one of the reasons 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 show that you're able to make payments to a lender.
- Correct your credit report. If you find incorrect items 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.
Knowing the ways you can 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 applications within a two-week window to avoid adverse effects on your credit score. With the help of LE Real Estate Group Inc., shopping for a mortgage is sure to go more smoothly so you, too, can become a homeowner.
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.
I work with all tiers of FICO scores and can help you step into home ownership with the right lender for you. E-mail me at firstname.lastname@example.org or call 813-322-3222 for more information.