Your FICO Score
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. The quality of your wallet starts the home buying process. Without an acceptable credit score, buying a house is harder and, you could end up renting longer than you expected in Comanche County until your score improves.
The Fair Isaac Company bases your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people traditionally having a score of 650. Since we’ve experienced an economic downturn, however, some people have seen their score drop dramatically as a result of job loss, closed credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the factors in reviewing your FICO score include:
- 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?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
In reviewing your credit history, you’ll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to determine your credit rating. FICO is used by Experian. Equifax’s model is called BEACON and TransUnion uses EMPIRICA. This means you have three scores, one for each scoring model.
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 FICO score gives lenders a view of what type of borrower you are based solely on your credit history. You’ll need a score of at least 700 to get a decent interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated in the long run could be more than double the amount of someone with a better FICO score.
You want a stronger score, but how do you get it? Improving your FICO score takes time. It can be hard to make a significant change in your number with small changes, but your score can improve in a year or two by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Spread your debt around. At first, this doesn’t sound like a good idea. But, you steer clear 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 about 25% of their credit limit than to have the majority of your debt taking up the balance a single card.
- Retail cards and service station cards. For those who have non-existent credit or low credit, retail 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 FICO score. You should always avoid carrying a large balance for too long because these types of cards more than likely have a steeper interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, 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. Late payments hurt your credit history. It’s where people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to restore your credit this way, but it’s the surest way to prove that you’re responsible enough to make payments to a bank.
- Correct your credit report. If you discover mistakes on your credit report, write to 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 give extra care to make sure the activity reported is correct.
Now that you’re better informed 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 house, you’ll want to keep your credit inquiries within a two-week window to avoid damaging your credit score. With the help of Sasseen Realty Group at Remax Professionals, the loan application process is sure to go more smoothly so you, too, can become a homeowner.
Learn more about FICO scores at 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.