FICO - The First Step to Owning
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. Without an acceptable FICO score, buying a house is more difficult and, you could end up renting longer than you expected in Needham until your score improves.
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. In recent years, however, some people have seen their score drop by hundreds of points as a result of job loss, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors in deciding your FICO score include:
- Payment History — Do you pay your bills on time ?
- 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 credit cards and loans?
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'd be based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get an acceptable interest rate. You'll still get approved for a mortgage with a lower score, but the interest accrued in the long run could be more than double that of someone with a superior credit score.
We're used to working with all tiers of credit scores. Call us at (617) 799-3326 and we can help you get on the right track to the home of your dreams.
There are strategies to boost your score. Building your FICO score takes time. It can be difficult to make a significant change in your FICO score with small changes, but your score can improve in a year by monitoring your credit report and by wisely using credit. 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 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 an even balance than to have the most of your debt sitting on one card.
- Apply for gas station cards or retail credit. For those who have non-existent credit or low credit, retail credit cards and gas credit cards are ways to get credit, increase your credit limits and stay on top of your payments, which will raise your credit. You must always beware of holding a high balance for more than a couple of months because these types of cards normally have a surprisingly high interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts stay active. But, be sure to pay them off in one or two payments.
- 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 with payment history, but it's the surest 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.
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 damaging your credit score. With the help of Louis Wolfson & Co., the loan 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 review your credit history for free 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.