Home buyer's Guide to Better Credit
Most people assume that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process begins and ends with your finances. Without an above average FICO score, buying a house is more difficult and, you could end up renting longer than you expected in Fort Worth until your FICO score is acceptable.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people usually have a score of 600, but scores are tiered from 300 to 850. In recent years, however, some borrowers have seen their score drop dramatically because of underemployment, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in summing up your FICO score include:
- Payment History — How many late payments have you made?
- 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 loans and credit cards?
Lenders want to make sure that allowing you a loan isn't a risk for them. Your FICO score gives lenders an insight into what type of borrower you are solely because of your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. You'll still qualify for a loan with a lower score, but the interest accrued over time could be more than double that of someone having a stronger FICO score.
Getting your credit in order is the first step in owning a home. Call us at (817) 233-4092 and we can help you get on the right track to the home of your dreams.
You want a stronger score, but how do you get there? Building your FICO score takes time. It can be rare 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. Here are some methods to improve your credit score:
- 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 about 25% of their credit limit than to have the majority of your debt taking up the balance one card.
- Apply for service station cards or chain store credit. For those who have no credit or low credit, chain store credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and stay on top of your payments, which will raise your FICO score. You must always beware of keeping a large balance for too long because these types of cards more than likely have a surprising 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, be sure to pay them off in no more than two or three payments.
- Keep up with payments. Late payments kill your credit history. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to build up your credit with payment history, but it's the most reliable way to show that you're able to make payments to a bank.
- Correct your credit report. If you find mistakes 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 give extra care to make sure the activity reported is correct.
Now that you know more about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Keep in mind that when it's time to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid damaging your credit score. With the help of DFW Home Team, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit www.myFICO.com, Fair Isaac's informational site and review your credit history for free 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.
We won't judge you based on your FICO scores and can help you step into home ownership with the best lender for you. E-mail us at firstname.lastname@example.org or call (817) 233-4092 for more information.