Scoring Your Credit
Choosing a lender isn't the first step in becoming a homeowner. The quality 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 longer than you expected in Needham until you improve your score.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people traditionally have a score of 600, but scores are tiered from 300 to 850. Since we've experienced an economic downturn, however, some borrowers have seen their score drop by hundreds of points as a result of unemployment, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in determining your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — Do you pay your bills on time ?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
When you pull your credit report, 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 calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. This means you have three scores, one for each scoring model.
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. 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 740 to get a satisfactory interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest accumulated over time could be more than double the amount of someone having a better FICO 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.
There are methods to improve your score. Building your FICO score takes time. It can be difficult to make a large-scale change in your number with quick fixes, but your score can improve in a year 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. You'll improve your credit score by using these helpful hints:
- Store cards and gas station cards. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and stay on top of your payments, which will raise your credit. You must always avoid maintaining a high balance for too long because these types of cards normally have a higher interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts maintain an active status. But, pay them off in one or two payments.
- Pay on time. Delinquent payments drastically lower your credit score. 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 rebuild your credit with payment history, but it's the most reliable way to prove that you're responsible enough 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 give extra care to make sure the activity reported is correct.
- Spread your debt around. 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 the rest of your cards at a zero balance. It's better to have each of your cards at about less than 40% of their credit limit than to have the majority of your debt taking up the balance a single card.
Knowing the methods you can use to raise your FICO score, you're one step closer to becoming a homeowner. Know that when it's time to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid damaging your credit score. With the help of Louis Wolfson & Co., the loan application process is sure to go more smoothly so you, too, can become a homeowner.
Get more information by visiting 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.