Your FICO Score

Home Buyer’s Guide to Better Credit

The Fair Isaac Company bases your FICO score on the summary of your total 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 drop dramatically after unemployment, charged off credit card accounts, or credit card accounts terminated because the card didn’t carry a high balance. Some of the pieces in calculating your FICO score include:

• Credit Inquiries — How many times has your credit history been accessed by someone other than you?
• Types of Credit — Do you have a healthy mix of loans and credit cards?
• Payment History — How many late payments have you made?
• Credit to Debt Ratio — How much do you owe versus how much credit you have available?

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 determine your credit rating. FICO is used by Experian. Equifax’s model is called BEACON and TransUnion uses EMPIRICA. This means you have three scores, one for each bureau.

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 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 satisfactory interest rate. You’ll still qualify for a mortgage loan with a lower score, but the interest paid 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 levels of credit scores. Call us at (918) 970-4000 and we can help you get on the right track to the home of your dreams.

How do you get a stronger score? Improving your FICO score takes time. It can be difficult to make a large-scale change in your credit score with quick fixes, but your score can improve in a few years by monitoring 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:

• Even out your debt. At first, this doesn’t sound like a good idea. But, you want to avoid 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 about 25% of their credit limit than to have all of your debt taking up the balance a single card.
• Retail cards and service station cards. For those who have non-existent credit or low credit, chain store credit cards and gas credit cards are ways to get credit, increase your credit limits and stay on top of your payments, which will raise your credit. You should always beware of maintaining a large balance for too long because these types of cards usually have a steeper interest rate.
• Use your credit. 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 no more than two or three payments.
• Keep up with payments. Your credit score plummets with every 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 build up your credit with payment history, but it’s the surest way to prove that you’re able 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.

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 applications within a two-week window to avoid adverse effects on your credit score. With the help of Hickerson Realty, the loan process can be a stress-free experience so you, too, can achieve home ownership.

To learn more, visit myFICO.com, Fair Isaac’s informational site and you can review all of your credit reports for free each year 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.