Tips on Raising Your FICO Score for Home Buying
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 begins and ends with your finances. To make your goal of homeownership realized, considering your credit score is a must along with the type of lender for which you'll qualify in Chicago.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people traditionally have a score of 650, but scores range 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 a low score and that often means you can't get credit. Some of the factors in deciding your FICO score include:
- 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?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many times do you make late payments?
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 credit score gives lenders an insight into 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 700 or higher to get a decent interest rate. You'll still get approved for a mortgage loan with a lower score, but the interest accrued over the life of the loan could be more than double the amount of someone with a near perfect credit score.
We're used to working with all tiers of credit scores. Contact us and we can help you get on the right track to the home of your dreams.
How do you get a stronger score? Improving your FICO score takes time. It can be difficult to make a significant change in your number with quick fixes, but your score can improve in a year 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. You'll improve your credit score by using these tips:
- Correct your credit report. If you discover incorrect items on your credit report, contact 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 steer clear of having 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 25% of their credit limit than to have all of your debt transferred to a single card.
- Department store cards and gas station cards. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to begin your credit history, increase your credit limits and keep up your payments, which will raise your credit. You must always beware of charging a high balance for more than a couple of billing cycles because these types of cards usually have a surprisingly high interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards so that your accounts stay active. But, be sure to pay them off in no more than two or three 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 show that you're responsible enough to make payments to a lender.
Knowing the ways you can improve your FICO score, you can move toward becoming a homeowner. 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 damaging your credit score. With the help of Mark Malave, the loan application 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 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.