How's Your FICO?

Choosing a lender isn't the first step in becoming a homeowner. In reality, the home buying process starts with your finances. Saving your money for a down payment is a good idea, but if you lack a strong credit score to back it up, you could end up renting for another couple of years in Annapolis until you build up your score.

The Fair Isaac Company calculates your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with most people traditionally 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 summing up your FICO score include:

• Payment History — How often do you make late payments?
• Credit to Debt Ratio — How much do you owe versus your available credit?
• Credit Inquiries — Do you have too many open accounts?
• Types of Credit — Do you have a healthy mix of loans and credit cards?

When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a risk. Your credit score gives lenders an insight into what type of borrower you'd 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 decent 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 an individual having a superior FICO score.

We're used to working with all levels of credit history. Call us at 410-647-8000 ext. 817 and we can help you get on the right track to the home of your dreams.

There are plans to improve your score. Improving your FICO score takes time. It can be rare to make a significant change in your FICO 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 most important thing 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, use your cards so that 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 FICO score. It's where people who have recently been unemployed see the biggest dip in their credit score. Yes, it takes longer to restore your credit this way, but it's the most reliable way to show that you're responsible enough to make payments to a lender.
• Ensure that your credit history is correct. If you find incorrect items on your credit report, write to 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 pay extra attention to make sure the activity reported is correct.
• Spread your debt around. 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 less than 40% of their credit limit than to have the bulk of your debt transferred to a single card.
• 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 repair credit, increase your spending limits and keep up your payments, which will raise your credit. You must always beware of maintaining a high balance for too long because these types of cards normally have a steeper interest rate.

Knowing the methods you can use to improve your FICO score, you're one step closer to becoming a homeowner. Keep in mind 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 Berkshire Hathaway Home Services PenFed Realty, shopping for a mortgage can be a stress-free experience so you, too, can achieve home ownership.

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.