Scoring Your Credit - How's Your FICO?

Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. Saving your money for a down payment is great, but if you don't have an acceptable credit score to reinforce it, you could find yourself renting longer than you expected in Colorado Springs until your score improves.

A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people traditionally have a score of 600, but scores range from 300 to 850. With the change in the economy, however, some people have seen their score drop by hundreds of points because of underemployment, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in deciding your FICO score are:

• Types of Credit — Do you have a healthy mix of credit cards and loans?
• Payment History — How many times 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?

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 a view of what type of borrower you'll be solely because of your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated over the life of the loan could be more than double that of someone having a superior FICO score.

Staying on top of your FICO score is the first step in buying a home. Contact us and we can help you get on the right track to the home of your dreams.

You want a better score, but how do you get it? Improving your FICO score takes time. It can be hard to make a significant change in your credit score with quick fixes, but your score can improve in a year or two 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 pointers:

• Apply for gas cards or department store credit. For those who have non-existent credit or below average credit, chain store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and keep up your payments, which will raise your FICO score. You must always beware of holding a large balance for too long because these types of cards traditionally have a surprising interest rate.
• Keep your cards active. Whether you have older cards, or are just getting started with credit, be sure to use your cards so that your accounts stay active. But, pay them off in no more than two or three payments.
• Pay on time. How often you're late with payments greatly affects your credit score. It's one of the reasons people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to build up your credit with payment history, but it's the surest way to prove that you're responsible enough to make payments to a bank.
• Ensure that your credit history is correct. 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 steer clear of having one card that is maxed out and have your remaining 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 taking up the balance one card.

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. Keep in mind that when you're ready to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of Brian L. A. Wess, the loan application process is sure to go more smoothly so you, too, can become a homeowner.

To learn more, visit myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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.