FICO - The First Step to Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. To realize your goal of owning a home, you must consider your FICO score along with the type of loan for which you'll qualify in Rockledge.
A FICO score is a collection 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 normally having a score of 650. Since we've experienced an economic downturn, however, some people have seen their score drop by hundreds of points as a result of job loss, charged off credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in reviewing your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- 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?
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'd 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. You can qualify for a loan with a lower score, but the interest accumulated over the life of the loan could be more than double the amount of an individual with a better credit score.
We're used to working with all tiers of FICO scores. Call us at 321-631-0511 and we can help you get on the right track to the home of your dreams.
There are methods to boost your score. Building your FICO score takes time. It can be hard to make a significant stride change in your number 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 pointers:
- Ensure that your credit history is correct. If you discover mistakes 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 give extra care to make sure the activity reported is correct.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you don't want to have one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at an even balance than to have the majority of your debt taking up the balance one card.
- Apply for gas cards or department store credit. For those who have non-existent credit or low credit, department store credit cards and gas credit cards are ways to begin your credit history, increase your credit limits and have a solid payment history, which will raise your FICO score. You must always avoid carrying a high balance for too long because these types of cards traditionally have a higher interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, pay them off in no more than two or three payments.
- Stay on top of payments. Your credit score plummets with every account that goes to collections. It's where people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to build up your credit this way, but it's the most reliable way to prove that you're responsible enough to make payments to a bank.
Knowing the ways you can improve your FICO score, you're one step closer to becoming a homeowner. Know that when you're ready to apply for a loan to purchase a house, you'll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of Rahal Real Estate LLC, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit 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.