FICO - The First Step to Home Ownership

The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process starts and ends with your finances. To realize your goal of owning a home, considering your credit score is a must along with the type of lender for which you'll qualify in Brunswick County.

The Fair Isaac Company bases your FICO score on the summary of your total credit history. The score ranges from 300 to 850, with the majority of people normally having a score of 600. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is just that and often means you can't get a loan. Some of the factors in calculating your FICO score include:

• Types of Credit — Do you have a healthy mix of credit cards and loans?
• Payment History — How often 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?

In reviewing your credit history, you'll find 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. You have a credit score with each of the bureaus.

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 FICO score gives lenders an insight into what type of borrower you'd be 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 an acceptable interest rate. If your score is lower, you can still qualify for a loan, but the interest accumulated over time could be more than double the amount of an individual having a superior FICO score.

How do you boost your credit score? Building your FICO score takes time. It can be difficult to make a large-scale change in your credit score with small changes, but your score can improve in a year by keeping tabs your credit report and by wisely using credit. The most important thing is to know your FICO score. You'll improve your credit score by using these tips:

• Don't let your cards get dusty. 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 stay active. But, be sure to pay them off in one or two payments.
• Pay on time. Late payments hurt your FICO score. It's one of the reasons people who have recently experienced job loss 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 able to make payments to a bank.
• Correct your credit report. If you discover 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 seem like a good idea. But, you steer clear of having one card that is holding the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at a smaller balance than to have the majority of your debt sitting on one card.
• Department Store cards and gas 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 spending limits and have a solid payment history, which will raise your FICO score. You should always beware of holding a large balance for more than a couple of months 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 step in owning a home, and that is improving your FICO score. Remember that when it's time to apply for a loan to purchase a home, you'll want to keep your applications within a two-week window to avoid damaging your credit score. With the help of Mary T. "Beth" Suggs, the loan process is sure to go more smoothly so you, too, can become a homeowner.

Get more information by visiting www.myFICO.com, Fair Isaac's informational site and review your credit history for free 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.