Tips on Raising Your FICO Score for Home Buying
You might think that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process begins and ends with your finances. Saving your money for a down payment is a good idea, but if you don't have an acceptable credit score to back it up, you could find yourself renting for another couple of years in Pittsburgh, Pennsylvania until your score improves.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people traditionally having a score of 600. 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 a low score and that often means you can't get a decent interest rate. Some of the factors in summing up your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
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'll be based solely on your credit history. You'll need a score of at least 740 to get a acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest paid over the life of the loan could be more than double that of someone with a better credit 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 an improved score, but how do you get it? Improving your FICO score takes time. It can be hard to make a significant change in your FICO score with small changes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- Pay on time. Delinquent payments drastically drop your credit score. It's where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the surest way to show that you're able to make payments to a bank.
- Ensure that your credit history is correct. If you find mistakes on your credit report, contact 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 give extra care to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't sound 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 about 30% of their credit limit than to have the majority of your debt taking up the balance a single card.
- Apply for service station cards or retail credit. For those who have non-existent credit or less-than-stellar credit, store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and keep up your payments, which will raise your FICO score. You should always beware of holding a large balance for too long because these types of cards traditionally have a surprisingly high interest rate.
- Use your credit. 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, make sure you pay them off in no more than two or three payments.
Now that you know more about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Remember 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 Hanley Agency, Inc., 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.