Ways to Raise Your FICO Score for Home Buying

Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins and ends with your finances. Putting back your money for a down payment is great, but if you don't have a strong credit score to reinforce it, you could find yourself renting longer than you expected in Fresno until your score improves.

A FICO score is a review of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people traditionally have a score of 650, but scores range from 300 to 850. With the change in the economy, however, some people have seen their score drop by hundreds of points as a result of loss of employment, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the factors in determining your FICO score include:

• 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?
• Credit Inquiries — Do you have too many open accounts?

In reviewing your credit history, you'll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. As a result, you have three scores, one for each scoring model.

Lenders want to ensure that allowing you a loan is a safe move. Your credit score gives lenders a view of what type of borrower you'll be 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 an acceptable interest rate. You can qualify for a loan with a lower score, but the interest accrued over time could be more than double the amount of someone with a stronger FICO score.

How do you boost your credit score? Building your FICO score takes time. It can be rare to make a significant change in your number 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:

• Don't let your cards get dusty. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.
• Stay on top of payments. 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 build up your credit this way, but it's the surest way to prove that you're responsible enough to make payments to a lender.
• Correct your credit report. 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 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 about less than 40% of their credit limit than to have the bulk of your debt sitting on a single card.
• Chain Store cards and gas cards. For those who have non-existent credit or low credit, store credit cards and gas credit cards are ways to get credit, increase your credit limits and keep up your payments, which will raise your credit. You must always beware of holding a high balance for more than a couple of months because these types of cards usually have a larger interest rate.

Knowing the ways you can improve your credit score, you can move toward becoming a homeowner. Know that when you're ready to apply for a loan to purchase a home, you'll want to keep your lender applications within a two-week window to avoid adverse effects on your credit score. With the help of Hale Realty, the loan application process is sure to go more smoothly 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.