Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. To become a homeowner, considering your credit score is a must along with the type of loan for which you'll qualify in Monterey County.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people traditionally have a score of 650, but scores range 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 decent interest rate. Some of the factors in calculating your FICO score are:
- Payment History — How often do you make late payments?
- 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?
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 models to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. You have a credit score with all three of the bureaus.
Lenders want to be positive that allowing you a loan isn't a risk for them. Your FICO score gives lenders 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. If your score is lower, you can still qualify for a loan, but the interest accumulated over the life of the loan could be more than double that of an individual with a higher credit score.
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Getting your credit in order is the first step in buying a home. Call us at 888-476-8975 and we can help you get on the right track to the home of your dreams.
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You want an improved score, but how do you get there? Improving your FICO score takes time. At Leonard Scott Realty - Short Sale Center, we know it's difficult to make a large-scale change in your number with quick fixes, 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 most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- 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 at the limit and have the rest of your cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have the majority of your debt transferred to a single card.
- Apply for gas cards or retail credit. For those who have no credit or low credit, department store credit cards and gas credit cards are ways to repair credit, increase your spending limits and have a solid payment history, which will raise your FICO score. Just beware of maintaining a large balance for more than a couple of billing cycles because these types of cards normally have a steeper interest rate.
- Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts stay active. But, be sure to pay them off in no more than two or three payments.
- Stay on top of payments. Late payments kill your credit history. 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 build up your credit this way, but it's the most reliable way to prove that you're able to make payments to a lender.
- 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 pay extra attention to make sure the activity reported is correct.
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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 it's time to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Leonard Scott Realty - Short Sale Center, the loan process can be a stress-free experience so you, too, can become a homeowner.
Learn more about FICO scores at www.myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.
At Leonard Scott Realty - Short Sale Center we don't judge you based on your credit and can help you settle into home ownership with the best mortgage lender for you. E-mail us at nelis@shortsaleyh.com or call 888-476-8975 for additional information.
