Scoring Your FICO

Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process begins with your finances. Saving your money for a down payment is a good idea, but if you don't have an acceptable credit score to back it up, you could find yourself renting longer than you expected in Central Ohio, Ohio until your score improves.

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. 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 just that and often means you can't get credit. Some of the pieces in summing up your FICO score are:

• Types of Credit — Do you have a healthy mix of credit cards and loans?
• Payment History — How many months do you make late payments?
• 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?

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 credit score gives lenders a view of what type of borrower you are solely because of your credit history. You'll need a score of at least 700 to get a satisfactory interest rate. You'll still qualify for a mortgage loan with a lower score, but the interest accrued over time could be more than double that of an individual having a superior FICO score.

You want a stronger score, but how do you get it? Building your FICO score takes time. It can be hard to make a significant stride change in your credit score with small changes, but your score can improve in a few years by keeping tabs your credit report and by using your credit wisely. The best way to do this is to know your FICO score. Here are some ways you can improve your credit score:

• Retail cards and service station cards. For those who have no credit or below average credit, retail 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 must always beware of carrying a high balance for more than a couple of billing cycles because these types of cards normally have a larger interest rate.
• Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, be sure to use your cards to make sure your accounts stay active. But, be sure to pay them off in no more than two or three payments.
• Pay on time. Your FICO score plummets with each account that goes to collections. It's where people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit with payment history, but it's the surest way to show that you're responsible enough to make payments to a bank.
• Correct your credit report. If you find incorrect items on your credit report, contact 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 pay extra attention 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 the rest of your cards at a zero balance. It's better to have each of your cards at about 30% of their credit limit than to have all of your debt transferred to one card.

Knowing the methods you can use to raise your credit score, you can move toward becoming a homeowner. Remember 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 a negative mark on your credit score. With the help of Golden Gate Real Estate, the loan application process can be a stress-free experience so you, too, can become a homeowner.

To learn more, visit www.myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.