How's Your Credit?
Most people assume that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process starts and ends with your finances. To realize your goal of owning a home, considering your credit score is a must along with the type of loan for which you'll qualify in Pierre.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people traditionally have a score of 600, but scores range from 300 to 850. With the change in the economy, however, some borrowers have seen their score drop dramatically because of loss of employment, delinquent credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the factors in calculating your FICO score are:
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — How many times do you make late payments?
- 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?
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 an insight into what type of borrower you'd be solely because of 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 lower, you can still qualify for a loan, but the interest paid over the life of the loan could be more than double that of someone having a near perfect credit score.
Getting your credit in order is the best way to ease into owning a home. Call us at (605) 494-4663 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 hard to make a significant stride change in your credit score with small changes, but your score can improve in a few years by keeping tabs 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:
- Keep your cards active. 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, pay them off in no more than two or three payments.
- Stay on top of payments. Your FICO score plummets with each account that goes to collections. 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 restore your credit with payment history, but it's the surest way to prove that you're responsible enough to make payments to a lender.
- Ensure that your credit history is correct. If you discover 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 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 don't want to have one card that is maxed out and have your remaining 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 bulk 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, chain store credit cards and gas credit cards are ways to improve credit, increase your credit limits and keep up your payments, which will raise your FICO score. You must always beware of holding a high balance for more than a couple of billing cycles because these types of cards usually have a surprising interest rate.
Knowing the methods you can use to raise your credit score, you can move toward becoming a homeowner. Remember 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 a negative mark on your credit score. With the help of Premier Property, shopping for a mortgage 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 once per year, for free, you can review all three of your credit reports 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.