Home buyer's Guide to Better Credit
Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. Without an acceptable FICO score, purchasing a house is more difficult and, you could end up renting longer than you expected in Englewood, Colorado until your score improves.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people usually 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 job loss, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in summing up your FICO score include:
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- 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 credit cards and loans?
- Payment History — Do you pay your bills on time ?
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 a view of 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 satisfactory interest rate. You can get approved for a mortgage with a lower score, but the interest accrued over time could be more than double the amount of someone with a better FICO score.
Staying on top of your FICO score is the best way to ease into owning a home. Contact us 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? Building your FICO score takes time. It can be hard to make a large-scale change in your number with quick fixes, but your score can improve in a few years 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. Here are some ways you can improve your credit score:
- Apply for gas station cards or retail credit. For those who have non-existent credit or low credit, store credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and stay on top of your payments, which will raise your credit. You should always beware of holding a large balance for too long because these types of cards usually have a surprisingly high interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts stay active. But, pay them off in no more than two or three payments.
- Stay on top of payments. 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 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 bank.
- Ensure that your credit history is correct. If you find 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.
- Spread your debt around. At first, this doesn't seem like a good idea. But, you don't want to have 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 a smaller balance than to have the majority of your debt transferred to a single card.
Knowing the ways you can build up your FICO score, you're one step closer to becoming a homeowner. Keep in mind that when it's time to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With the help of Coldwell Banker Residential Brokerage, the loan process is sure to go more smoothly 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.