First-Time Buyer's Guide to Better Credit

The home buying process doesn't start with getting pre-approved by a lender or with choosing a Real Estate Agent. The content of your wallet begins the home buying process. Saving your money for a down payment is great, but if you lack a strong credit score to back it up, you could find yourself renting for another couple of years until your FICO score is acceptable.

A FICO score is a collection of your years of credit history based on an instrument developed by Fair Isaac and Company. Most people traditionally have a score of 600, but scores are tiered from 300 to 850. With the change in the economy, however, some people have seen their score drop by hundreds of points as a result of job loss, closed credit card accounts, or credit card accounts closed by the lender due to inactivity. Some of the pieces in calculating your FICO score are:

• Payment History — How many months do you make late payments?
• Credit to Debt Ratio — How much do you owe versus your available credit?
• 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 credit cards and loans?

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 calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. This means you have three scores, one for each bureau.

Lenders want to make sure 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. You'll need a score of at least 740 to get a satisfactory 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 someone having a near perfect credit score.

How do you boost your credit score? Improving your FICO score takes time. It can be hard to make a significant 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. You'll improve your credit score by using these tips:

• Spread your debt around. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is at the limit and have your remaining cards at a zero balance. It's better to have each of your cards at a lower balance than to have the most of your debt sitting on one card.
• Department Store cards and gas station cards. For those who have non-existent credit or below average credit, store credit cards and gas credit cards are ways to start your credit history, increase your spending limits and stay on top of your payments, which will raise your credit. You should always avoid keeping a large balance for more than a couple of billing cycles because these types of cards more than likely have a larger interest rate.
• Don't let your cards get dusty. 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, be sure to pay them off in no more than two or three payments.
• Keep up with payments. How often you're late with payments greatly affects 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 restore your credit this way, but it's the surest way to prove that you're responsible enough to make payments to a lender.
• Ensure that your credit history is correct. If you discover incorrect items on your credit report, write to 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.

Now that you're better informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Keep in mind that when you're ready to apply for a loan to purchase a house, you'll want to keep your applications within a two-week window to avoid damaging your credit score. With the help of RE/MAX Trinity, the loan process can be a stress-free experience so you, too, can achieve home ownership.

To learn more, visit www.myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports 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.