FICO - The First Step to Owning
The road to home ownership doesn't start with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process starts with your finances. To propel your dreams of homeownership forward, considering your credit score is a must along with the type of loan for which you'll qualify in Chicago, Illinois.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 650, but scores are tiered 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 loan. Some of the pieces in summing up your FICO score include:
- 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 months do you make late payments?
- Credit to Debt Ratio — How much do you owe versus your available credit?
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 calculate 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 make sure that giving you a loan isn't a risk for them. Your FICO score gives lenders an insight into what type of borrower you are 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 can qualify for a mortgage loan with a lower score, but the interest paid over the life of the loan could be more than double that of someone having a superior FICO score.
We're used to working with all tiers of FICO scores. Call us at (773) 938-2585 and we can help you get on the right track to the home of your dreams.
How do you boost your credit score? Building your FICO score takes time. It can be hard to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year or two by keeping tabs your credit report and by wisely using credit. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Keep your cards active. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts stay active. But, make sure you pay them off in one or two payments.
- Pay on time. Payment history is a huge factor in 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 restore your credit with payment history, but it's the surest way to prove that you're responsible enough to make payments to a bank.
- Correct your credit report. If you discover 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.
- Even out your debt. At first, this doesn't sound like a good idea. But, you don't want to have one card that is at the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at about 25% of their credit limit than to have all of your debt sitting on a single card.
- Apply for service station cards or department store credit. For those who have no credit or less-than-stellar credit, retail 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. You should always avoid keeping a large balance for too long because these types of cards more than likely have a surprising interest rate.
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. Remember that when it's time to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of Mark Malave, the loan process is sure to go more smoothly so you, too, can become a homeowner.
Learn more about FICO scores at 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.