Scoring Your Credit - How's Your Credit Score
Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet begins the home buying process. Without a reasonable FICO score, entering into a loan for a house is harder and, you could find yourself renting longer than you expected in Vista until your score improves.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. Most people traditionally have a score of 650, but scores are tiered from 300 to 850. 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 loan. Some of the factors in reviewing your FICO score are:
- 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?
- 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?
In reviewing your credit history, you'll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. You have a credit score with each of the bureaus.
Lenders want to ensure that giving you a loan isn't a risk for them. Your FICO score gives lenders a view of what type of borrower you are based solely on your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. You can get approved for a mortgage with a lower score, but the interest accumulated over time could be more than double the amount of someone having a near perfect credit score.
We're used to working with all levels of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.
You want a higher score, but how do you get there? Improving your FICO score takes time. It can be difficult to make a large-scale change in your FICO score with quick fixes, but your score can improve in a few years by monitoring 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:
- Chain store cards and gas cards. For those who have no credit or low credit, department store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and keep up your payments, which will raise your FICO score. You should always beware of maintaining a high balance for too long because these types of cards normally have a surprisingly high interest rate.
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts maintain an active status. But, pay them off in no more than two or three payments.
- Stay on top of payments. 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 dip in their credit score. Yes, it takes longer to restore your credit this way, but it's the most reliable way to show that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. 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.
- Even out your debt. At first, this doesn't seem 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 25% of their credit limit than to have the majority of your debt sitting on one card.
Now that you know more 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 you're ready to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid a negative mark on your credit score. With the help of Stoneridge Realty & Property Management Services, the loan application process is sure to go more smoothly 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.