How's Your FICO?

Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet starts the home buying process. To realize your goal of owning a home, considering your credit score is a must along with the type of loan for which you'll qualify in Needham.

The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with the majority of people traditionally having a score of 600. Even though more people these days are experiencing job loss and delinquent credit cards, 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 deciding your FICO score are:

• 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 how much credit you have available?
• Credit Inquiries — Do you have too many open accounts?

When you pull your credit report, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each bureau.

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 are based solely on your credit history. You'll need a score of at least 700 to get a decent interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest paid in the long run could be more than double that of an individual with a near perfect FICO score.

We're used to working with all levels of credit history. Call us at (617) 799-3326 and we can help you get on the right track to the home of your dreams.

You want a higher score, but how do you get there? Building your FICO score takes time. It can be hard to make a large-scale change in your FICO score with small changes, but your score can improve in a year or two by monitoring 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. Here are some methods to improve your credit score:

• Keep your cards in rotation. 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.
• Stay on top of payments. Delinquent payments instantly lower 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 rebuild your credit this way, but it's the surest way to show that you're able to make payments to a lender.
• Correct your credit report. If you discover incorrect items 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.
• Spread your debt around. At first, this doesn't seem like a good idea. But, you don't want to have one card that is at the limit and have your remaining cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have all of your debt taking up the balance a single card.
• Apply for gas cards or chain store credit. For those who have non-existent credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and keep up your payments, which will raise your FICO score. You should always beware of keeping a large balance for too long because these types of cards usually have a surprisingly high interest rate.

Knowing the ways you can build up 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 home, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of Louis Wolfson & Co., the loan application process is sure to go more smoothly so you, too, can achieve home ownership.

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.