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CC util or installment loans - which has bigger impact on mortgage FICOs?

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Anonymous
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CC util or installment loans - which has bigger impact on mortgage FICOs?

I have a question that I wasn't able to find an answer to in a sticky (my apologies if it's there). Some background-we did a kitchen reno last summer and planned to refi, but for a few different reasons, we haven't and now want to wait to see if we can get our scores up a bit first. 

 

My question is: Do we know what is weighted more heavily on the mortgage scores? 

 

I know the basics. I know:

  • it's awesome that we got DH's student loan late pays removed
  • it'll be good when my last couple derogs age off this summer
  • our biggest killer has been utilization
  • utilization was just greatly improved when we opened a few new cards and got a few CLI's (roughly 52% to 27% overall for me, similar for him)
  • we have all CC balances on 0% so I'm not in a great hurry to pay them off ASAP
  • (just learned recently) part of improving the utlilazation will come from getting out from behind paying the amount needed to avoid interest, and instead paying the account to $0 on our daily drivers (and since we're not going for the re-fi tomorrow, I'm fine if this takes a bit of time to work out of)
  • mortgage related FICO scores use a different algorithm than others (like the ones you see on your myfico dashboard)

DH and I both have student loans (low interest, not in a huge hurry to pay down)

DH and I both have an auto loan (low interest, not in a huge hurry to pay down)

There are three other loans at play.

 

One is a 0% from my CU. It's only $800, but they're slow to report so it's just reported to $900 (pay $100 a month). 

One is an 8% Home Depot project loan. It's about $2300. Not a horrible rate, and with the other 0%'s with end dates, I've not been in a hurry to pay this off.

One is a 10% Personal loan from my CU. It was also part of the kitchen remodel that the project loan and most of the other 0% items are from. This, I'd like to pay off ASAP, but as it's larger $12k, it's not as quick of a win. 

 

I'm inclined to pay off the CU and HD loans first, even though it would cost me more in interest, to get the smaller stuff out of the way. Yes, I know this is debt snowballing for the emotional gain, but would getting two Installment Accounts also help our scores, considering we'll have other installment accounts still? 

 

OR, since a couple of the 0% cards are at 90-ish% utilization, do those have the biggest impact and we should work at getting the utilzation down. Yes, this would potentially cost more interest, but since the 0% offers have expiration dates, they can't be stretched out as long as the installment loans anyway (other than the fact that there are often more 0% offers to follow...often with BT fees). 

 

So, from a FICO mortgage standpoint: pay off little installment loans or lower individual card utilizations (which of course lowers overall utilization)? 

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4 REPLIES 4
Lemmus
Established Contributor

Re: CC util or installment loans - which has bigger impact on mortgage FICOs?

...installment loans weigh more in the mortgage scoring algorithms ...but ANY cc with 90% utilization against the individual CL is going to hammer your score, even if total utilization is under 30% ...I'd focus on getting every cc under 30% of its individual CL as your first line of attack ...optimal revolving account scoring has all but one card PIF'd before statement and one with 1-9% balance at statement ...the fact that you're paying 0% interest is irrelevant to the Fico scoring algorithms ...once your ccs are in line, then you can think about your installment loans ...hth


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Message 2 of 5
Anonymous
Not applicable

Re: CC util or installment loans - which has bigger impact on mortgage FICOs?


@Lemmus wrote:

...installment loans weigh more in the mortgage scoring algorithms ...but ANY cc with 90% utilization against the individual CL is going to hammer your score, even if total utilization is under 30% ...I'd focus on getting every cc under 30% of its individual CL as your first line of attack ...optimal revolving account scoring has all but one card PIF'd before statement and one with 1-9% balance at statement ...the fact that you're paying 0% interest is irrelevant to the Fico scoring algorithms ...once your ccs are in line, then you can think about your installment loans ...hth


Thanks. That's been my current thought, but I just wanted to see if the mortgage view was any different. It'll be a long while before we get to optimum, and it's REALLY tempting to knock out the smaller stuff completely, but I figure I should keep shaving off the top of the highest utils. 

Message 3 of 5
StartingOver10
Moderator Emerita

Re: CC util or installment loans - which has bigger impact on mortgage FICOs?

Lemmus is right. While you are looking at your payments - take a look at those zero interest loans. Remember DTI is critical for mortgages and those zero interest loans usually have higher payments due monthly which could interfere with your mortgage/refinance amount. How much are you paying monthly (itemized amounts only, not personal details) in zero or low interest loans? That is  a critical figure when you are planning to obtain or refi a mortgage.

 

EDIT:  30% of your score is utilization and 35% is ontime payments.  Installment loans is 10% of your score. However debt to income is a huge factor in qualifying for a refi or a mortgage. That is why I say take a look at the actual payments you are making on those zero interest promo loans.

 

Message 4 of 5
Anonymous
Not applicable

Re: CC util or installment loans - which has bigger impact on mortgage FICOs?


@StartingOver10 wrote:

Lemmus is right. While you are looking at your payments - take a look at those zero interest loans. Remember DTI is critical for mortgages and those zero interest loans usually have higher payments due monthly which could interfere with your mortgage/refinance amount. How much are you paying monthly (itemized amounts only, not personal details) in zero or low interest loans? That is  a critical figure when you are planning to obtain or refi a mortgage.

 

EDIT:  30% of your score is utilization and 35% is ontime payments.  Installment loans is 10% of your score. However debt to income is a huge factor in qualifying for a refi or a mortgage. That is why I say take a look at the actual payments you are making on those zero interest promo loans.

 


True. The fact that the payment relative to debt is so high on my little 0% CU loan AND the fact that they're slow to report, I think I'll knock that little one out first. Thanks. 

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