Understanding Your FICO Score
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. You have a credit score with all of the bureaus.
Lenders want to be positive that giving you a loan is a safe move. Your FICO score gives lenders an insight into what type of borrower you'll be solely because of your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher 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 an individual having a stronger credit score.
We're used to working with all tiers of credit scores. Call us at 512-241-1707 and we can help you get on the right track to the home of your dreams.
You want a better score, but how do you get it? Improving your FICO score takes time. It can be difficult to make a significant change in your number with small changes, but your score can improve in a year or two by keeping tabs 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. You'll improve your credit score by using these helpful hints:
- Apply for service station cards or department store credit. For those who have non-existent credit or below average credit, department 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 FICO score. You should always avoid charging a large balance for more than a couple of months because these types of cards usually have a surprisingly high interest rate.
- 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 maintain an active status. But, make sure you pay them off in no more than two or three payments.
- Stay on top of payments. Your FICO score plummets with each 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 show that you're able to make payments to a lender.
- 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 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 want to avoid 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 most of your debt sitting on a single card.
Now that you're better informed about credit reporting, you'll be able to successfully take the first step in owning a home, 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 damaging your credit score. With the help of IREAF, LLC, the loan process can be a stress-free experience so you, too, can become a homeowner.
Get more information by visiting 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.