Scoring Your Credit - How's Your Credit Score
The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. The quality of your wallet begins the home buying process. To realize your goal of owning a home, you must consider your FICO score along with the type of mortgage loan for which you'll qualify in Lewisburg, Tennessee.
A FICO score is a review 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. In recent years, however, some borrowers have seen their score lowered because of job loss, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in reviewing your FICO score include:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- 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 — How many times has your credit history been accessed by someone other than you?
In reviewing your credit history, you'll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems 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 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 risk. 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 740 or higher to get an acceptable interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued in the long run could be more than double that of an individual with a near perfect credit score.
Improving your credit score is the first step in owning 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 difficult to make a significant change in your credit score with small changes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.
- Pay on time. Late payments hurt your credit history. It's where people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to build up 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.
- Correct your credit report. If you find incorrect items on your credit report, write to 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.
- Even out your debt. At first, this doesn't seem like a good idea. But, you want to avoid 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 an even balance than to have all of your debt transferred to a single card.
- Chain store cards and gas cards. For those who have no credit or low credit, department store credit cards and gas credit cards are ways to obtain credit, increase your credit limits and keep up your payments, which will raise your FICO score. You must always beware of carrying a high balance for more than a couple of months because these types of cards more than likely have a surprising interest rate.
Knowing the methods you can use to raise your credit score, you can move toward becoming a homeowner. Remember 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 Grover Collins Real Estate & Auction Inc., the loan process is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit myFICO.com, Fair Isaac's informational site and review your credit history for free 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.