The home buying process doesn't start with getting pre-approved by a lender 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 end up renting for another couple of years in Fremont, Ca. until your FICO score is acceptable.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 650, but scores range from 300 to 850. With the change in the economy, however, some people have seen their score drop dramatically as a result of job loss, charged off credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in reviewing your FICO score are:
- 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?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
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 insight into what type of borrower you are based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get an acceptable interest rate. If your score is less than that, you can still qualify for a loan, but the interest accrued in the long run could be more than double that of an individual with a near perfect credit score.
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We're used to working with all tiers of credit scores. Call us at 510-505-1660 and we can help you get on the right track to the home of your dreams.
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There are plans to boost your score. Improving your FICO score takes time. At REMAX ACTIVE REALTY, we know it's hard to make a large-scale change in your credit score with small changes, but your score can improve in a few years by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:
- Even out your debt. 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 a lower balance than to have the bulk of your debt transferred to one card.
- Apply for gas cards or retail credit. For those who have no credit or low credit, chain store credit cards and gas credit cards are ways to establish your credit history, increase your spending limits and keep up your payments, which will raise your credit. Just beware of holding a large balance for too long because these types of cards usually have a higher 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 stay active. But, be sure to pay them off in one or two payments.
- Stay on top of payments. How often you're late with payments greatly affects your credit 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 show that you're responsible enough 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 pay extra attention to make sure the activity reported is correct.
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Knowing the methods you can use raise 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 REMAX ACTIVE REALTY, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.
To learn more, visit www.myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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 REMAX ACTIVE REALTY we don't judge you based on your credit history and can help you step into home ownership with the right lender for you. E-mail us at Brucerockscali@gmail.com or call 510-505-1660 for additional information.
