Scoring Your Credit - How's Your Credit Score
The home buying process doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process starts and ends with your finances. Without an above average credit score, buying a house is more difficult and, you could end up renting longer than you expected in Oklahoma City, Oklahoma until your FICO score is acceptable.
A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. The score ranges from 300 to 850, with the majority of people traditionally having a score of 650. With the change in the economy, however, some borrowers have seen their score lowered as a result of job loss, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in deciding 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 — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
Lenders want to make sure that giving you a loan isn't a risk for them. Your FICO 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 740 or higher to get a decent interest rate. If your score is less than that, you can still qualify for a loan, but the interest paid over the life of the loan could be more than double the amount of an individual having a near perfect credit score.
We're used to working with all levels of credit history. Call us at (405) 509-5335 and we can help you get on the right track to the home of your dreams.
You want a higher score, but how do you get there? Improving your FICO score takes time. It can be hard to make a significant stride change in your credit score with small changes, but your score can improve in a few years by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. Here are some methods to improve your credit score:
- 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.
- Even out your debt. 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 your remaining 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 most of your debt transferred to a single card.
- Apply for service station cards or chain store credit. For those who have non-existent credit or below average credit, store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and keep up your payments, which will raise your FICO score. You should always beware of holding a large balance for more than a couple of billing cycles because these types of cards traditionally have a larger interest rate.
- Use your credit. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards so that your accounts maintain an active status. But, be sure to pay them off in one or two payments.
- Pay on time. 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 dip in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the most reliable way to prove that you're able to make payments to a lender.
Knowing the ways you can raise your FICO score, you can move toward becoming a homeowner. Remember that when you're ready 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 The Virtual Real Estate Team, the loan process is sure to go more smoothly so you, too, can become a homeowner.
Get more information by visiting 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.