How's Your Score?
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 propel your dreams of homeownership forward, you must consider your FICO score along with the type of mortgage loan for which you'll qualify in Colorado Springs, Colorado.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people normally having a score of 600. Since we've experienced an economic downturn, however, some borrowers have seen their score drop by hundreds of points as a result of job loss, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in deciding your FICO score are:
- Payment History — How often do you make late payments?
- 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?
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 FICO score gives lenders an insight into what type of borrower you are solely because of your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. You can 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 that of someone with a higher FICO score.
Getting your credit in order is the first step in purchasing a home. 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 rare to make a significant change in your FICO score with quick fixes, but your score can improve in a year by keeping tabs your credit report and by using your credit wisely. The most important thing is to know your FICO score. You'll improve your credit score by using these pointers:
- 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 holding 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 taking up the balance one card.
- Retail cards and service station cards. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and keep up your payments, which will raise your credit. You should always avoid holding a large balance for more than a couple of billing cycles because these types of cards traditionally have a surprisingly high interest rate.
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Keep up with payments. Delinquent payments drastically lower your credit score. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to build up your credit with payment history, but it's the surest way to show that you're able 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.
Knowing the methods you can use to improve your credit score, you're one step closer to becoming a homeowner. Keep in mind 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 a negative mark on your credit score. With the help of Brian L. A. Wess, the loan process can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit 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.