Home buyer's Guide to Better Credit

Most people assume that the home buying process starts with getting pre-approved by a lender or with choosing a real estate agent. In reality, the home buying process begins and ends with your finances. Without an acceptable FICO score, entering into a loan for a house is more difficult and, you could end up renting for another couple of years in Naples, Florida until your FICO score is acceptable.

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 650, but scores are tiered from 300 to 850. Job loss has been common in the last few years, but FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get a loan. Some of the pieces in determining 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 credit cards and loans?

When you pull your credit report, 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. As a result, you have three scores, one for each scoring model.

Lenders want to ensure that allowing you a loan isn't a risk for them. Your credit 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 less than that, you can still qualify for a loan, but the interest paid over time could be more than double that of an individual with a better credit score.

How do you obtain a stronger score? Building your FICO score takes time. It can be hard to make a significant change in your FICO score with small changes, but your score can improve in a year or two by monitoring 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 pointers:

• Department Store cards and gas station cards. For those who have non-existent credit or below average credit, department store credit cards and gas credit cards are ways to obtain credit, increase your spending limits and keep up your payments, which will raise your FICO score. You should always beware of carrying a high balance for more than a couple of months because these types of cards usually have a higher interest rate.
• Keep your cards in rotation. 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.
• Stay on top of payments. How often you're late with payments greatly affects your credit score. It's one of the reasons people who have recently experienced job loss see the biggest hit in their credit score. Yes, it takes longer to rebuild your credit this way, but it's the surest way to show that you're responsible enough to make payments to a bank.
• Ensure that your credit history is correct. If you discover mistakes on your credit report, contact the bureau asking 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.
• Spread your debt around. At first, this doesn't sound like a good idea. But, you want to avoid of having one card that is maxed out and have the rest of your cards at a zero balance. It's better to have each of your cards at about 20% of their credit limit than to have all of your debt taking up the balance a single card.

Knowing the ways you can raise your credit score, you're one step closer to becoming a homeowner. Keep in mind that when it's time to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of Metro Properties, shopping for a mortgage can be a stress-free experience so you, too, can become a homeowner.

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.