Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet starts the home buying process. Saving your money for a down payment is great, but if you lack an acceptable credit score to back it up, you could find yourself renting for another couple of years in Baldwin until you improve your score.
A FICO score is a collection 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. In recent years, however, some borrowers have seen their score lowered as a result of job loss, closed 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:
- Credit Inquiries — Do you have too many open accounts?
- 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 how much credit you have available?
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 insight into what type of borrower you are solely because of your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated over time could be more than double that of an individual having a near perfect FICO score.
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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. |
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There are methods to improve your score. Building your FICO score takes time. At Sailing Home Realty, Corp., we know it's difficult to make a large-scale change in your number with quick fixes, but your score can improve in a year or two by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Correct your credit report. If you find incorrect items 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.
- Spread your debt around. At first, this doesn't sound like a good idea. But, you want to avoid of having 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 25% of their credit limit than to have the most of your debt sitting on a single card.
- Apply for gas cards or store credit. For those who have non-existent credit or less-than-stellar credit, store credit cards and gas credit cards are ways to start your credit history, increase your credit limits and have a solid payment history, which will raise your credit. Simply beware of holding a too-high balance for too long because these types of cards usually have a steeper interest rate.
- Use your credit. 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.
- Keep up with payments. How often you're late with payments greatly affects your credit score. It's where 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 prove that you're responsible enough to make payments to a bank.
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Knowing the ways you can build your FICO score, you can move toward becoming a homeowner. Remember that when it's time 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 your credit score. With the help of Sailing Home Realty, Corp., the loan process can be a stress-free experience so you, too, can achieve home ownership.
Learn more about FICO scores at www.myFICO.com, Fair Isaac's informational site and review your credit history for free at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.
At Sailing Home Realty, Corp. we don't judge you based on your credit and can help you settle into home ownership with the right mortgage lender for you. E-mail us at homes@sailinghomerealty.com or call (516) 377-4760 for additional information.
