Most home buyers would probably put lending restrictions at the top of their list for hurdles in buying a home in today's real estate market. Borrowers in the real estate market need to have a minimum FICO score of approximately 620 to qualify for a home loan. Several components make up your FICO score. Do you know what steps to take to bump it up? Or are you wondering where to even start?
By MARILYN KALFUS, THE ORANGE COUNTY REGISTER
Illustration by Betty Lin-Fisher
"An individual's credit score is the result of complex algorithms and their own personal credit profile," says David Haub, a mortgage broker and business development manager for Map your Credit, a Huntington Beach-based credit rescoring company.
"The credit scores that are used by banks and lenders to approve mortgage loans are different from the scores that are available from consumer credit websites," he says. "While they are based in general on the same factors, the scores do not correlate, which can create confusion for a borrower who thinks they have a certain score only to find out that their mortgage score is lower."
The credit mapping process is different from credit repair. (Click here for a list of what to stay away from.)
Haub and Joanne Ahmadi, the founder of MFI Credit Solutions, which owns MapYourCredit.com, provide several tips for consumers on improving their FICO scores here. This is what they advise:
1. "Maintain some type of credit activity. Even if you pay cash for everything, pull out your credit card once every six months to fill up a tank of gas or buy a burger. Then pay off that bill on time."
2. "Do not close any open credit cards. You can cut up the cards or file them away. Just don't cancel them. The reason behind this is that your score is based on a measurement of how long you have had credit as well as the amount of available credit you are using."
3. "Pay all of your bills on time. While this may seem obvious, there are a good number of people who wait until the last minute to pay their bills and occasionally end up missing a due date. The penalty for a missed due date is a lot greater than the late charge."
4. "Pay down debt. A large percentage of your credit score is determined by the amount of debt you owe. If you have the funds available, paying down balances on revolving debt can help you improve your credit score. In many cases this does not mean spending all of your available funds nor does it mean paying all outstanding debt to zero."
5. "Seek advice before opening new credit lines or paying off collections. Sometimes it is beneficial for a borrower to take immediate action to improve scores and in other cases; it may be more advantageous to wait until your loan closes to take certain steps."
6. "It is never too soon to start thinking of improving your credit. In some cases, a credit map can achieve desired results within a week. Most people see results within thirty days. But there are a few people who require up to six months to improve their credit." You can see more at MapYourCredit.com.