Home buyer's Guide to Better Credit

The home buying process doesn't start with getting pre-approved by a lender or with choosing a real estate agent. The content of your wallet begins the home buying process. Without a reasonable credit score, purchasing a house is harder and, you could end up renting for another couple of years in Annapolis, Maryland until your FICO score is acceptable.

The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with most people normally having a score of 650. 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 a low score and that often means you can't get credit. Some of the factors in reviewing your FICO score are:

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

Lenders want to ensure that giving you a loan isn't a risk for them. Your credit score gives lenders a view of 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 700 or higher to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest paid over the life of the loan could be more than double that of someone having a near perfect FICO score.

Improving your credit score is the first step in owning a home. Contact us and we can help you get on the right track to the home of your dreams.

There are ways to improve your score. Improving your FICO score takes time. It can be rare to make a significant change in your number with quick fixes, but your score can improve in a few years by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. You'll improve your credit score by using these helpful hints:

• Keep your cards active. Whether you're just getting started with credit, or if you've got older cards, be sure to use your cards to make sure your accounts maintain an active status. But, be sure to pay them off in one or two payments.
• Keep up with payments. Payment history is a huge factor in your credit score. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to build up your credit this way, but it's the most reliable way to prove that you're able 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.
• Spread your debt around. 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 20% of their credit limit than to have the most of your debt sitting on a single card.
• Chain store cards and service station cards. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to begin your credit history, increase your spending limits and stay on top of your payments, which will raise your credit. You must always beware of carrying a high balance for too long because these types of cards traditionally have a larger interest rate.

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. Keep in mind that when it's time to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of Berkshire Hathaway Home Services PenFed Realty, the loan process is sure to go more smoothly so you, too, can achieve home ownership.

Learn more about FICO scores at myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.