FICO - The First Step to Owning
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 starts the home buying process. Saving your money for a down payment is a good idea, but if you don't have an acceptable credit score to reinforce it, you could end up renting longer than you expected in Austin until your score improves.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. The score ranges from 300 to 850, with most people normally having a score of 650. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get credit extended to you via a mortgage loan. Some of the factors in deciding your FICO score include:
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — Do you pay your bills on time every month?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
Lenders want to be positive that giving you a loan is a safe move. Your credit score gives lenders an insight into what type of borrower you'll be based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated over the life of the loan could be more than double that of someone having a higher FICO score.
We're used to working with all tiers of credit scores. Contact us and we can help you get on the right track to the home of your dreams.
How do you boost your credit score? Improving your FICO score takes time. It can be rare to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year by keeping tabs your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these tips:
- Correct your credit report. If you discover incorrect items on your credit report, write to 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 seem like a good idea. But, you steer clear 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 less than 40% of their credit limit than to have the majority of your debt taking up the balance a single card.
- Apply for gas cards or chain store credit. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to get credit, increase your credit limits and keep up your payments, which will raise your credit. You must always avoid charging a large balance for more than a couple of billing cycles because these types of cards usually have a surprisingly high interest rate.
- 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 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. Late payments hurt your FICO score. It's one of the reasons people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to build up your credit this way, but it's the most reliable way to prove that you're responsible enough to make payments to a bank.
Knowing the methods you can use to improve your credit score, you can move toward becoming a homeowner. Keep in mind that when it's time to apply for a loan to purchase a house, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of Engel & Volkers, the loan process is sure to go more smoothly so you, too, can achieve home ownership.
Learn more about FICO scores at 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.