How's Your FICO?

Choosing a lender isn't the first step in becoming a homeowner. The quality of your wallet begins the home buying process. Without an above average credit score, buying a house is harder and, you could end up renting for another couple of years in Naples until you raise your score.

A FICO score is a review of your years of credit history based on a model developed by Fair Isaac and Company. Most people usually have a score of 600, but scores are tiered from 300 to 850. In recent years, however, some borrowers have seen their score lowered because of job loss, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in calculating your FICO score are:

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

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

How do you obtain a stronger score? Building your FICO score takes time. It can be difficult to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year or two by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these pointers:

• Even out your debt. At first, this doesn't seem like a good idea. But, you don't want to have one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at an even balance than to have the most of your debt sitting on one card.
• Apply for gas cards or department store credit. For those who have no credit or below average credit, store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and have a solid payment history, which will raise your FICO score. You should always beware of maintaining a large balance for more than a couple of months because these types of cards normally have a surprisingly high interest rate.
• Keep your cards in rotation. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts maintain an active status. But, pay them off in one or two payments.
• Stay on top of payments. Delinquent payments drastically lower your credit score. It's one of the reasons people who have recently been unemployed 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 responsible enough to make payments to a lender.
• Correct your credit report. If you find mistakes on your credit report, write to 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.

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. Know that when it's time 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 Metro Properties, the loan application process is sure to go more smoothly so you, too, can achieve home ownership.

Learn more about FICO scores at 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.