Ways to Improve Your FICO Score for Home Buying
You might think that the home buying process starts with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process starts 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 longer than you expected in Castro Valley until you raise your score.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with the majority of people traditionally having a score of 600. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is just that and often means you can't get a loan. Some of the pieces in reviewing your FICO score include:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — Do you pay your bills on time every month?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- 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 problem. Your FICO score gives lenders a view of 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 lower, you can still qualify for a loan, but the interest accrued over the life of the loan could be more than double the amount of someone with a better FICO score.
We're used to working with all levels of FICO scores. Contact us and we can help you get on the right track to the home of your dreams.
There are plans to boost your score. Building your FICO score takes time. It can be difficult to make a significant stride change in your number with quick fixes, but your score can improve in a year or two by monitoring your credit report and by using your credit wisely. The most important thing is to know your FICO score. You'll improve your credit score by using these tips:
- Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Stay on top of payments. Delinquent payments instantly drop 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 most reliable way to show that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. If you discover mistakes 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 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 steer clear of having 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 20% of their credit limit than to have the majority of your debt transferred to one card.
- Store cards and gas station cards. For those who have no credit or low credit, store credit cards and gas credit cards are ways to get credit, increase your spending limits and have a solid payment history, which will raise your credit. You should always beware of holding a large balance for too long because these types of cards more than likely have a larger interest rate.
Knowing the methods you can use to improve your FICO score, you can move toward becoming a homeowner. Keep in mind that when it's time to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Intero Real Estate Services, 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.