FICO – The First Step to Home Ownership

The home buying process doesn’t start with getting pre-approved by a lender or with choosing a real estate agent. The content of your wallet begins the home buying process. Putting back your money for a down payment is great, but if you lack a strong credit score to reinforce it, you could find yourself renting for another couple of years in Wyomissing until your FICO score is acceptable.

 

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 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 just that and often means you can’t get a decent interest rate. Some of the pieces in determining your FICO score are:

  • 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 loans and credit cards?
  • Payment History — Do you pay your bills on time every month?
  • Credit to Debt Ratio — How much do you owe versus how much credit you have available?

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 insight into what type of borrower you’ll be based solely on 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 qualify for a mortgage loan with a lower score, but the interest paid in the long run could be more than double that of an individual with a higher credit score.

We’re used to working with all levels of credit scores. Call us at 610.376.9999 and we can help you get on the right track to the home of your dreams.

There are methods to boost your score. Building your FICO score takes time. It can be difficult to make a large-scale change in your credit 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 best way to do this is to know your FICO score. Here are some ways you can improve your credit score:

  • Pay on time. How often you’re late with payments greatly affects 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 rebuild your credit with payment history, but it’s the surest way to prove that you’re responsible enough to make payments to a bank.
  • Correct your credit report. If you discover mistakes 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.
  • Spread your debt around. At first, this doesn’t sound like a good idea. But, you don’t want to have one card that is maxed out and have the rest of your cards at a zero balance. It’s better to have each of your cards at about 20% of their credit limit than to have all of your debt taking up the balance one card.
  • Chain Store cards and service station cards. For those who have no credit or below average credit, department store credit cards and gas credit cards are ways to establish your credit history, increase your spending limits, and have a solid payment history, which will raise your credit. You must always avoid holding a large balance for too long because these types of cards normally have a surprisingly high 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 so that your accounts stay active. But, pay them off in one or two payments.

Knowing the ways you can raise your credit score, you’re one step closer to becoming a homeowner. Remember that when it’s time 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 Sands & Co Real Estate, the loan process is sure to go more smoothly so you, too, can become a homeowner.

Get more information by visiting www.myFICO.com, Fair Isaac’s informational site and review your credit history for free at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.

We work with all tiers of credit scores and can help you get back into home ownership with the best lender for you. E-mail us at sands@parealestate.com or call 610.376.9999 for additional information.