The home buying process doesn't start with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process begins with your finances. Saving your money for a down payment is great, but if you lack a strong credit score to reinforce it, you could find yourself renting for another couple of years in Nassau/Suffolk County until your FICO score is acceptable.
A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 600, but scores are tiered from 300 to 850. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is just that and often means you can't get credit extended to you in the form of a mortgage loan. Some of the factors in summing up your FICO score are:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — Do you pay your bills on time ?
- Credit to Debt Ratio — How much do you owe versus your available credit?
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
When you pull your credit report, you'll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, 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 view of what type of borrower you'll be 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 less than that, you can still qualify for a loan, but the interest accrued in the long run could be more than double the amount of someone having a better FICO score.
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Getting your credit in order is the best way to ease into owning a home. Call us at 631-543-6363 and we can help you get on the right track to the home of your dreams. |
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There are ways to boost your score. Building your FICO score takes time. At Cafarelli Realty Corp, we know it's rare to make a significant change in your credit score with small changes, but your score can improve in a year or two by keeping tabs on your credit report and by wisely using credit. Cafarelli Realty Corp., can also provide referral resources to aide you in improving your credit score. The best way to do this is to know your FICO score. Here are some methods to improve your credit score:
- Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts stay active. But, be sure to pay them off in one or two payments.
- Pay on time. Delinquent payments instantly lower 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 restore your credit this way, but it's the surest way to show that you're responsible enough to make payments to a lender.
- Correct your credit report. If you find 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.
- Even out your debt. At first, this doesn't sound like a good idea. But, you steer clear of having 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 a smaller balance than to have the most of your debt sitting on a single card.
- Store cards and gas station cards. For those who have no credit or below average credit, retail credit cards and gas credit cards are ways to start your credit history, increase your credit limits and keep up your payments, which will raise your FICO score. Just beware of maintaining a balance for more than a couple of billing cycles because these types of cards traditionally have a higher interest rate.
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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. Know that when it's time to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid adverse effects your credit score. With the help of Cafarelli Realty Corp, the loan process can be a stress-free experience so you, too, can become a homeowner.
Get more information by visiting www.myFICO.com, Fair Isaac's informational site and you can review all of your credit reports for free each year 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 Cafarelli Realty Corp we work with all levels of FICO scores and can help you step into home ownership with the best lending insitution for you. E-mail us at realtyteam@cafarelliagency.com or call 631-543-6363 for additional information.
