First-Time Buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet begins the home buying process. Without an above average FICO score, buying a house is harder and, you could find yourself renting for another couple of years in North Kingstown until your FICO score is acceptable.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. Most people usually have a score of 600, 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 a low score and that often means you can't get a loan. Some of the pieces in reviewing your FICO score include:
- 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 your available credit?
Lenders want to make sure that giving you a loan isn't a risk for them. Your FICO score gives lenders an insight into what type of borrower you are based solely on your credit history. You'll need a score of at least 700 to get a decent 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 the amount of someone with a higher credit score.
Improving your FICO score is the best way to ease into purchasing a home. Call us at 401-932-9005 and we can help you get on the right track to the home of your dreams.
There are ways to boost your score. Improving your FICO score takes time. It can be hard to make a large-scale change in your credit score with small changes, but your score can improve in a few years by keeping tabs your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Keep your cards active. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts maintain an active status. But, pay them off in no more than two or three payments.
- Stay on top of payments. How often you're late with payments greatly affects your credit score. It's where 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 surest way to show that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. If you discover 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 sound like a good idea. But, you want to avoid of having one card that is maxed out 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 most of your debt taking up the balance one card.
- Store cards and gas station cards. For those who have non-existent credit or low credit, department store 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 maintaining a high balance for too long because these types of cards usually have a higher interest rate.
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 home, you'll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With the help of Greater R.I. Properties, LLC, shopping for a mortgage can be a stress-free experience so you, too, can become a homeowner.
To learn more, visit 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.