Tips on Improving Your FICO Score for Home Buying

The home buying process 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. Without an above average FICO score, entering into a loan for a house is more difficult and, you could end up renting longer than you expected in Needham, Massachusetts until you improve your score.

The Fair Isaac Company bases your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people traditionally having a score of 650. In recent years, however, some borrowers have seen their score lowered after unemployment, charged off credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors in summing up your FICO score include:

• 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?
• Types of Credit — Do you have a healthy mix of loans and credit cards?
• Payment History — How many times do you make late payments?

In reviewing your credit history, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems 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 scoring model.

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 solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get an acceptable interest rate. You can qualify for a mortgage with a lower score, but the interest accrued over time could be more than double the amount of an individual having a higher credit 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.

How do you boost your credit score? Improving your FICO score takes time. It can be rare to make a large-scale change in your number with quick fixes, but your score can improve in a few years by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. You'll improve your credit score by using these pointers:

• Apply for gas cards or department store credit. For those who have non-existent credit or less-than-stellar credit, department store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and stay on top of your payments, which will raise your credit. You should always beware of keeping a high balance for too long because these types of cards traditionally have a higher interest rate.
• Use your credit. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts maintain an active status. But, make sure you pay them off in no more than two or three payments.
• Keep up with payments. How often you're late with payments greatly affects your credit score. It's one of the reasons people who have recently experienced job loss see the biggest hit 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 lender.
• Ensure that your credit history is correct. If you find incorrect items on your credit report, write to the bureau asking 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 the rest of your cards at a zero balance. It's better to have each of your cards at a lower balance than to have the most of your debt sitting on a single card.

Now that you know more 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 you're ready to apply for a loan to purchase a house, 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 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.