FICO - The First Step to Owning
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet starts the home buying process. Saving your money for a down payment is great, but if you lack a strong credit score to reinforce it, you could find yourself renting longer than you expected in Chicago, Illinois until you improve your score.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people usually have a score of 650, but scores are tiered from 300 to 850. 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 a low score and that often means you can't get a decent interest rate. Some of the pieces in deciding your FICO score include:
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- 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 credit cards and loans?
- Payment History — How many late payments have you made?
Lenders want to ensure that allowing you a loan is a safe move. Your credit 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 740 or higher to get a decent interest rate. You'll still get approved for a mortgage with a lower score, but the interest accumulated in the long run could be more than double the amount of someone having a superior FICO score.
Improving your credit score is the best way to ease into buying a home. 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? Improving your FICO score takes time. It can be rare to make a large-scale change in your number with small changes, but your score can improve in a year or two by keeping tabs your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- Pay on time. Your FICO score plummets with every account that goes to collections. It's where people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the most reliable way to show that you're responsible enough to make payments to a bank.
- Ensure that your credit history is correct. If you find incorrect items on your credit report, write to 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.
- 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 a lower balance than to have the most of your debt transferred to a single card.
- Apply for gas station cards or department store credit. For those who have no credit or low credit, department store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and stay on top of your payments, which will raise your credit. You should always beware of keeping a large balance for more than a couple of billing cycles because these types of cards traditionally have a higher interest rate.
- Use your credit. 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 no more than two or three payments.
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. Keep in mind 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 Mark Malave, the loan process can be a stress-free experience so you, too, can become a homeowner.
Get more information by visiting myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.