FICO - The First Step to Home Ownership
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet begins the home buying process. Without an acceptable credit score, entering into a loan for a house is more difficult and, you could end up renting for another couple of years in Myrtle Beach, South Carolina until you raise your score.
A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people traditionally have a score of 650, but scores are tiered from 300 to 850. Since we've experienced an economic downturn, however, some people have seen their score lowered after job loss, charged off credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in determining your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- 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 pull your credit report, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. This means you have three scores, one for each scoring model.
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 FICO 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 decent interest rate. You'll still get approved for a mortgage loan with a lower score, but the interest paid over the life of the loan could be more than double that of an individual with a better FICO score.
We're used to working with all tiers of FICO scores. Call us at (843) 633-2929 and we can help you get on the right track to the home of your dreams.
There are plans to increase your score. Building your FICO score takes time. It can be rare to make a significant stride change in your credit score with small changes, but your score can improve in a year by monitoring your credit report and by wisely using credit. 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 have older cards, or are just getting started with credit, use your cards so that your accounts maintain an active status. But, be sure to pay them off in one or two payments.
- Stay on top of payments. Payment history is a big factor in your FICO 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 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.
- Correct your credit report. If you discover incorrect items 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 pay extra attention 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 the rest of your cards at a zero balance. It's better to have each of your cards at about less than 40% of their credit limit than to have all of your debt transferred to one card.
- Apply for gas cards or chain store credit. For those who have no credit or low credit, retail credit cards and gas credit cards are ways to obtain credit, increase your credit limits and have a solid payment history, which will raise your credit. You should always beware of holding a high balance for more than a couple of billing cycles because these types of cards usually have a steeper interest rate.
Now that you're better informed about credit reporting, you'll be able to successfully take the first step in owning a home, and that is improving your FICO score. Keep in mind 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 adverse effects on your credit score. With the help of Ben Guyton, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.
Get more information by visiting 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.