Scoring Your Credit - How's Your Credit Score
The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process starts with your finances. Saving your money for a down payment is a good idea, but if you lack an acceptable credit score to back it up, you could end up renting for another couple of years in North Kingstown, Rhode Island until your score improves.
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. In recent years, however, some borrowers have seen their score lowered 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 calculating your FICO score are:
- 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?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How often do you make late payments?
Lenders want to ensure that giving you a loan is a safe move. Your FICO score gives lenders a view of what type of borrower you'll be based solely on your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. You can get approved for a mortgage loan with a lower score, but the interest accumulated in the long run could be more than double the amount of someone with a stronger FICO score.
Staying on top of your FICO score is the best way to ease into purchasing a home. Contact us and we can help you get on the right track to the home of your dreams.
There are strategies to increase your score. Building your FICO score takes time. It can be difficult to make a significant change in your number with quick fixes, but your score can improve in a few years by monitoring 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 pointers:
- Keep up with payments. Your credit score plummets with every account that goes to collections. It's where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the most reliable way to show that you're able to make payments to a bank.
- Ensure that your credit history is correct. If you discover 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 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 want to avoid 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 an even balance than to have all of your debt transferred to a single card.
- Department store cards and gas cards. For those who have non-existent credit or low credit, retail credit cards and gas credit cards are ways to repair credit, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always beware of carrying a high balance for more than a couple of billing cycles because these types of cards normally have a higher interest rate.
- Don't let your cards get dusty. 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, be sure to pay them off in one or two payments.
Now that you're more informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Know that when it's time to apply for a loan to purchase a home, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of Greater R.I. Properties, LLC, the loan process can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.