Buying A Home? Your Credit Score is Key to Getting a Mortgage
Choosing a mortgage lender isn’t the first step in becoming a homeowner. The quality of your financial situation starts the home buying process. To become a homeowner, considering your credit score is a must along with the type of mortgage loan for which you’ll qualify in the St Petersburg and Tampa Bay area.
The mortgage companies calculates your FICO score on the summary of your complete credit history. Most people usually have a score of 650, but scores are tiered from 300 to 850. Even though more people these days are experiencing job loss and delinquent credit cards, FICO scores aren’t necessarily adjusted “on a curve.” A low score is a low score and that often means you can’t get credit extended to you via a mortgage loan. Some of the factors in determining your FICO score include:
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- 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 — How many late payments have you made?
Lenders want to make sure that issuing you a loan is a safe move. 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 700 or higher to get an acceptable interest rate. You’ll still get approved for a loan with a lower score, but the interest accrued in the long run could be more than double the amount of someone with a near perfect FICO score.
There are strategies to improve your score. Building your FICO score takes time. It can be hard to make a significant stride change in your FICO score with quick fixes, but your score can improve in a year by monitoring your credit report and by using your credit wisely. 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 find 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 pay extra attention to make sure the activity reported is correct.
- Even out your debt. At first, this doesn’t seem like a good idea. But, you don’t want to have 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 lower balance than to have the most of your debt sitting on a single card.
- Retail cards and gas station cards. For those who have no credit or below average credit, department store credit cards and gas credit cards are ways to repair credit, increase your credit limits and have a solid payment history, which will raise your FICO score. You should always beware of charging a large balance for more than a couple of billing cycles because these types of cards more than likely have a surprisingly high interest rate.
- Use your credit. Whether you’re just getting started with credit, or if you’ve got older cards, use your cards to make sure your accounts maintain an active status. But, pay them off in no more than two or three payments.
- Keep up with payments. 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 hit in their credit score. Yes, it takes longer to build up your credit this way, but it’s the surest way to show that you’re able to make payments to a bank.
Now that you know more about credit reporting, you’ll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Remember that when you’re ready 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 Metro Properties, shopping for a mortgage 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 review your credit history for free at annualcreditreport.com. Or, for a small payment, you can get your FICO score from each bureau on their websites: equifax.com, experian.com and transunion.com.