Scoring Your Credit
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 a good idea, but if you lack a strong credit score to reinforce it, you could find yourself renting for another couple of years in Norman until your score improves.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with most people normally having a score of 600. In recent years, however, some people have seen their score lowered after loss of employment, delinquent credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in deciding your FICO score are:
- Credit Inquiries — Do you have too many open accounts?
- Types of Credit — Do you have a healthy mix of loans and credit cards?
- Payment History — Do you pay your bills on time ?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
When you pull your credit report, you'll find 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. You have a credit score with all three of the bureaus.
Lenders want to ensure that allowing you a loan isn't a risk for them. Your credit score gives lenders a view of 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 700 or higher to get a decent interest rate. You'll still qualify for a loan with a lower score, but the interest accrued over the life of the loan could be more than double that of an individual with a higher FICO score.
We're used to working with all tiers of credit history. Call us at (405)360-5635 and we can help you get on the right track to the home of your dreams.
How do you get a higher score? Improving your FICO score takes time. It can be rare to make a large-scale change in your credit score with quick fixes, but your score can improve in a year by monitoring your credit report and by using credit extended to you to raise your score, instead of ruin it. The most important thing is to know your FICO score. Here are some ways you can improve your credit score:
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, use your cards to make sure your accounts stay active. But, make sure you pay them off in no more than two or three payments.
- Keep up with payments. Your FICO score plummets with every account that goes to collections. It's one of the reasons people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the most reliable way to prove that you're able to make payments to a lender.
- Ensure that your credit history is correct. If you find incorrect items 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.
- Spread your debt around. 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 the rest of your 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 taking up the balance one card.
- Apply for service station cards or department store credit. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to establish your credit history, increase your credit limits and stay on top of your payments, which will raise your FICO score. You should always avoid maintaining a large balance for too long because these types of cards normally have a larger interest rate.
Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Know that when it's time to apply for a loan to purchase a house, you'll want to keep your lender applications within a two-week window to avoid a negative mark on your credit score. With the help of Vawter Real Estate, the loan process 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.