Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts and ends with your finances. Putting back your money for a down payment is great, but if you lack an acceptable credit score to reinforce it, you could end up renting longer than you expected in Los Angeles County until you build your score.
The Fair Isaac Company calculates your FICO score on the summary of your total credit history. Most people usually have a score of 600, but scores range from 300 to 850. In recent years, however, some people have seen their score lowered because of loss of employment, closed credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in reviewing your FICO score include:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- 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?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
In reviewing your credit history, you'll find that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. You have a credit score with all three of the bureaus.
Lenders want to be positive that giving you a loan isn't a risk for them. Your FICO score gives lenders insight into what type of borrower you are based solely on your credit history. You'll need a score of at least 740 to get a satisfactory interest rate. You'll still get approved for a mortgage with a lower score, but the interest paid in the long run could be more than double the amount of an individual with a better credit 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.
|
|
|
|
|
There are methods to increase your score. Building your FICO score takes time. At RE/MAX PV Realty, we know it's hard to make a large-scale change in your number with quick fixes, but your score can improve in a few years by keeping tabs your credit report and by using your credit wisely. 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 discover mistakes 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.
- 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 maxed out and have the rest of your cards at a zero balance. It's better to have each of your cards at a smaller balance than to have the majority of your debt transferred to a single card.
- Chain Store cards and gas station cards. For those who have non-existent credit or low credit, store credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and have a solid payment history, which will raise your credit. Just avoid charging a balance for more than a couple of two because these types of cards usually have a surprisingly high interest rate.
- Keep your cards in rotation. 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, pay them off in one or two payments.
- Pay on time. Delinquent payments instantly drop your credit score. It's where people who have recently experienced job loss 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 responsible enough to make payments to a lender.
|
Now that you know more 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 damaging your credit score. With the help of RE/MAX PV Realty, shopping for a mortgage is sure to go more smoothly so you, too, can achieve home ownership.
Get more information by visiting 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 RE/MAX PV Realty we work with all tiers of credit scores and can help you settle into home ownership with the right lender for you. E-mail us at aephraim@remaxpv.com or call 310-541-6389 for additional information.
