@Anonymous wrote:
Hello everyone, looking for a little advice and my apologies if this seems long winded.
I'm currently in the process of retiring from the military and we are very close to being debt free. We have two vehicles that are paid off, no credit card debt and we have a third vehicle we make payments on. I have a few different credit cards but only use one and we pay the balance off every month. Currently we are renting but we have owned two homes in the past which we've sold. My credit is very good currently with my three scores being 800, 803 and 808.
My goal when I retire in a few months will be to have no debt and stay that way until we are approved for a home loan and in a house where we settle down.
Here are my questions/concerns:
1. Will being completely debt free lower my scores if let’s say it takes me a year or so to start our home buying process
2. Will my scores go up once everything is paid off and will a higher score than my current scores benefit us at all?
3. I feel like we've done everything right up to this point but what do I need to keep doing make sure my scores stay where they are without adding any additional debt?
Lastly, are bills such as cell phone bills, cable, internet and utility costs included when lenders calculate debt to income ratios?
Thanks in advance to everyone who responds. I wish I joined myFICO much earlier!
1. Being completely debt free might lower your score. One of the factors that effects your score is your credit mix or the number and variety of credit accounts. Having at least one installment account and one CC can help your score. 3 or so CCs (or more) is usually better. For your CCs, you should let at least one of them report a balance each month. Pay the balance in full before the due date to avoid interest, but if all your CCs report zero balances your score will be impacted negatively. As far as installment loans (like auto loans/etc), not having any open accounts will hurt your score, but 800+ scores without them are very possible.
2. If your scores are in the low 800 range, higher scores probably won't help for a mortgage. Bear in mind, however, that most mortgage lenders pull 3 scores and use your middle score. They also tend to pull 98 or 04 versions of the FICO score and not the 08 version available through the 3 Bureau Monitoring service here or the 08 version available through some CCs (like Discover/Barclays). Your FICO 98 and 04 scores might be significantly different than your 08 scores or any FAKO scores you might have from the credit bureaus, credit karma, and similar sites.
3. Having a small installment loan can help your score if your other loans have dropped off. Also have at least one card report a balance each month and PIF so you have no interest charges. The small installment loan will only help if your FICO 98 and 04 scores are 40 or more points below the scores you listed. Anything about 760 or so (varies a bit by lender/market/etc) is generally unimportant for most loans.
4. Generally utility bills and the like are not accounted for in debt to income ratios. Only reported debts on your credit report are known by most lenders as well as debt they specifically ask you about like rent which typically is not on a credit report. Your credit report does not provide all the information for debt to income ratios since income and some obligations (like rent, utilities, etc) are not on them. Your cell phone bills should not be on them either unless you take a loan and the loan is reported (unlikely). But many lenders take other factors into account when determining what they will lend. For example, mortgage lenders will be interested in your pay, your debt obligations on your credit report (car, student loans, credit cards, etc), and the amount of your mortgage payment.
