Improve Your Credit History
First-time borrowers often have anxiety about low credit scores. They may not have a history of borrowing because they're young, they've never taken out a loan, or even had a credit card.
If you’re getting ready to shop for home mortgages, or any kind of large loan it’s a good idea to begin working on your credit history and getting that score up. To do that, it’s important to know the factors that affect your FICO score:
- Making payments on time: 35%
- Overall debt: 30%
- Length of credit: 15%
- New credit applications: 10%
- Types of credit: 10%
Know Your Score
You can only fix something when you know it’s broken, and knowing your credit score is the first step to helping it go up. Under the Fair Credit Reporting Act, you have a right to request your own credit report from a credit bureau to review it. This allows you to dispute any errors by writing to the relevant credit bureau, which must investigate the dispute within 30 days.
Start Building Credit
Starting a credit history is as simple as signing up for a credit card. Use a credit card to pay for everyday items and set up utility bill payments online through a credit card account in your name. Keep in mind to avoid accumulating debt by paying off the balance in a timely manner.
Don’t Let Your Balance Go Past-Due
Your payment history makes up 35% of your score, making it the most important factor of your credit. The more behind you are on your payments, the more it hurts your credit score. Try to pay off your outstanding balances in full rather than carrying it forward. In addition to avoiding interest payments, it will reflect favorably on your credit report when a lender updates your account status to "paid in full."
Don't Use ALL Your Credit
A key to scoring favorably on your credit is leaving most of it unused. Experts agree that if you use no more than 30% of your available credit, it affects your credit score positively. For example, if you have a 3 credit cards, two with a limit of $1,500 and one with a limit of $2,000, you have $5,000 total credit available. Keeping your combined balance under $1,500 (30% of $5,000) will help maintain a good credit score, because it shows lenders that you are able to use your given credit responsibly.
Avoid Applying for More Credit
When you apply for a new line of credit, lenders perform what is called a “hard inquiry” into your credit. This review of your credit itself affects your score. Applying for credit a number of times in a short timeframe sends a red flag to lenders who might assume that you’re in dire financial straits. So, if you are in the process of repairing a low credit score, avoid making any new applications for credit.
FHA Loan Articles
November 2, 2021Interest rates started to decline in 2019 and still seem considerably low. The average rate for a 30-year, fixed rate home loan has fallen from 4.94% in November 2018 to 3.13% in October 2021. A point drop in your interest rate could translate to huge savings with each monthly payment
October 16, 2021The FHA’s aim is to make homeownership more affordable and accessible for Americans, and it has been doing so for decades. It insures home loans made by FHA-approved lenders so borrowers can purchase single-family and multi-family homes in the US and its territories.
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September 2, 2021For many first-time home buyers, the FHA loan is a popular option. With its lenient credit and income requirements, it appeals to young borrowers who don’t have an extensive credit history, or enough money saved up for a down payment.
August 9, 2021Many first-time homebuyers need some help understanding and navigating the ins and outs of the mortgage process, and down payments are an essential part of that. A down payment is an upfront installment made on a large purchase while the remainder is paid off with a loan.
July 14, 2021Making the decision to buy a house is a big one, followed by the choice of which house to buy. The next biggest decision you make is going to be the type of home loan you need to go through with the purchase. One option for financing your home is an FHA loan.
