Home buyer's Guide to Better Credit

The road to home ownership doesn't start with getting pre-approved for a loan or with choosing a real estate agent. The content of your wallet begins the home buying process. Without an acceptable credit score, entering into a loan for a house is harder and, you could end up renting longer than you expected in Mechanicsville, Virginia until your score improves.

A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 650, but scores range from 300 to 850. Since we've experienced an economic downturn, however, some borrowers have seen their score drop dramatically because of unemployment, delinquent credit card accounts, or credit card accounts that were closed because they don't carry a balance. Some of the pieces in calculating your FICO score are:

• Payment History — Do you pay your bills on time ?
• Credit to Debt Ratio — How much do you owe versus how much credit you have available?
• 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 loans and credit cards?

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 models to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each bureau.

Lenders want to make sure that giving you a loan is a safe move. Your credit score gives lenders an insight into what type of borrower you'd be solely because of your credit history. You'll need a score of at least 700 to get a decent interest rate. If your score is less than that, you can still qualify for a loan, but the interest accrued over the life of the loan could be more than double that of someone having a higher FICO score.

We're used to working with all tiers of credit history. Contact us and we can help you get on the right track to the home of your dreams.

How do you boost your credit score? Building your FICO score takes time. It can be rare to make a significant stride change in your FICO score 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. Here are some methods to improve your credit score:

• Keep up with 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 dip in their credit score. Yes, it takes longer to restore your credit with payment history, but it's the surest way to prove that you're able to make payments to a bank.
• Correct your credit report. If you find mistakes 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 your remaining cards at a zero balance. It's better to have each of your cards at about 30% of their credit limit than to have the most of your debt sitting on one card.
• Apply for gas cards or store credit. For those who have non-existent credit or low credit, department store credit cards and gas credit cards are ways to get credit, increase your credit limits and have a solid payment history, which will raise your FICO score. You must always beware of holding a large balance for more than a couple of billing cycles because these types of cards traditionally have a larger interest rate.
• Use your credit. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts maintain an active status. But, pay them off in one or two payments.

Knowing the methods you can use to raise your credit score, you're one step closer to becoming a homeowner. Know that when you're ready to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of Lighthouse Realty, Inc., the loan application process can be a stress-free experience so you, too, can become a homeowner.

To learn more, visit myFICO.com, Fair Isaac's informational site and review your credit history for free 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.