FICO - The First Step to Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. To become a homeowner, you must consider your FICO score along with the type of mortgage loan for which you'll qualify in Colorado Springs.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people traditionally have a score of 600, but scores range from 300 to 850. Since we've experienced an economic downturn, however, some people have seen their score drop by hundreds of points because of loss of employment, charged off credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors in calculating your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — Do you pay your bills on time ?
- 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 find 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. You have a credit score with all three of the bureaus.
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your credit score gives lenders an insight into what type of borrower you are 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 an acceptable interest rate. You can qualify for a mortgage loan with a lower score, but the interest accrued in the long run could be more than double the amount of someone having a superior credit score.
We're used to working with all tiers of FICO scores. Call us at (719) 528-6672 and we can help you get on the right track to the home of your dreams.
You want an improved score, but how do you get there? Improving 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 by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Spread your debt around. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at an even balance than to have all of your debt taking up the balance one card.
- Retail cards and service station cards. For those who have non-existent credit or less-than-stellar credit, department store credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always avoid maintaining a large balance for more than a couple of months because these types of cards usually have a higher interest rate.
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts maintain an active status. But, pay them off in no more than two or three payments.
- Keep up with payments. Delinquent payments drastically drop your credit score. It's one of the reasons 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 lender.
- Ensure that your credit history is correct. If you find 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 give extra care to make sure the activity reported is correct.
Now that you know more about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Know that when you're ready to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With the help of Brian L. A. Wess, shopping for a mortgage can be a stress-free experience so you, too, can become a homeowner.
Learn more about FICO scores at 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.