Why does every say you have to have a least a 620 score for FHA loans

[Anonymous]

The easiest and best way to jump points is to get your credit cards paid down to under 9% utilization.  30% helps, but 9% is the most beneficial number. 

You have to remember that the lenders may ask you to do things based on making your FILE look better, not your credit report.  they will ask you to pay off collections,etc to make sure those things do not come back to haunt you later.  An underwriter will look more favorable on a file with the same FICO score that has all the negative accounts paid then they will one that has a bunch of unpaid ones.  Paying them will not help your score and can at times lower them.  Jusr remember that a LO is there to sell you a loan and a UW is there to judge risk for their client (not you).  Neither is there to better your credit score.

One thing, If you say you have been approved and are at  565 midscore, I would get that in writing that it is a full approval, not some pre-qual.  Almost no one is lending at less than 620 right now and if the lender had really "approved" you, they would not worry to much about improving your FICO score.  They would be telling you to do nothing that could make it drop any more (i.e paying collections).  This sounds like an overly optimistic LO who "thinks" he can get a loan pushed through.  This is not happening like it used to.  MANY people on these boards have been led along by LO's telling them they can get them financed only to loose out on time, money, and even worse, hope. 

I wish you the best and hope it all works out for you.

[Anonymous]

This stuff makes no sense to me at all.

If it makes no difference to pay it off then why ever pay it?

So I did the right thing and paid nearly all of the collection accounts off or settled. So now I just have to wait seven years to see some results? This is so weird.

How does one rectify past/bad credit history? How do you make right of your wrong? Pay one of these financial institutions to write letters over and over again to get the debt removed. And even that is not garanteed. I've been told the stuff can pop back up years later.

There is no rhyme or reason to this FICO score thing. It seems there is no clear answer but it will sure stop one from having the American dream of owning their own home.

Humm...I am stumped.

[Anonymous]

First off, there is no sure way to "fix" bad credit.  All you can do is work on getting new credit and establishing positive history.  You can "request" a PFD or GW from an old account or to remove late history, but there is no requirement for a lender/creditor to do so and many have zero tolerance policies and will refuse 100% of these requests.  It does not hurt to ask though.

Paying a collection does not help your score because you take the credit hit when it appears on your score.  Since it is considered a bad debt, they do not update it when you pay it (except for changing date of last activity)  This is the part that can actually make it hurt your score to pay it as FICO takes date of last activity into account when weighing in an account.  So, say a collection is 4 years old.  At that point it is no longer having a serious affect on your credit.  BUT, if you pay it and the DOLA gets changed to recent, it can hurt your score a little.

The companies that do what you are talking about are committing fraud.  Plain and simple.  Why it is within your right as a consumer to dispute innaccurate entries on your report, it is considered fraud to keep sending letter about legitimate entries on the hope that one day they will forget to respond an then remove it.  This is one reason that alot of banks/lenders/etc are now refusing to fund loan for people with disputes on their reports.

And yes, accounts not disputed properly can appear later or be sold off and become a new collection account down the road...

As far as paying off collections, the point of paying them off is to honor agrrements you made with companies and to pay your debt.  For obvious reasons, a lender may want to see that you have fullfilled all of your past obligations prior to lending money to you.  That is why Loan officers adn Underwriters may ask for them to be paid, not to help your score.

[Anonymous]

Yea i'm in same boat , worked so hard to get my scores fixed over last 2 years finally hit 600 mark , went to make offer , BAMM , new standards hit , very disappointed in the fact that we tax payers are bailing out the banks , and there not only holding on to there money , but making it that much harder to get loans , how does that fix our economy..

Having said that , me and my wife are close mid score was 615 , but my last attempt at getting a mort. hasnt shown up on report yet  , hopefully wont be a big hit.

[Anonymous]

The exact same thing happened to me. Got a pre-qual was working on pre approval, found a house called the lender BAMMM oops as of three days ago you no longer qualify because your middle score is 618 and now it has to be 620 instead of 580. Needless to say I was an unhappy camper.

Luckily there were things that were still being worked on and now my middle score is 632 with my bottom score being 618. 

last month EX 666, EQ 618, TU 608

Now EX 666, TU 632, EQ 618 so it all worked out and we are going forward on the home but man I was hot!

[Anonymous]

You need a pre-approval letter before you go shopping.  Most likely, you will need a 620 mid-score to get one.  Being pre-qualified is not the same, and, most likely, not going to get you a home.

Lending standards have tightened considerably, 580 to 600 and now 620.  Banks are getting creamed by the onslaught of foreclosures.  There are still a few lenders getting deals done with a 600, but not many.

Keep in mind that a 620 does not get you the best mortage rates and FHA has limits on the loan amount in your area. 

Lenders want to know that you are responsible enough to pay off the loan.  Collection accounts, charge offs and late payments significantly impact your credit score.  Also, high credit balances are a good indicator that you may have financial troubles.  That's why 65% of your FICO score is based upon these two areas.

Resolving your past credit issues is possible if you know what you're doing.  Many people hire professionals.  It is NOT fraud to request that the credit bureaus investigate your credit information is accurate.

Under the FCRA, they can only report information that is accurate, up-to-date, and verifiable.  The law was written to protect consumers from the abuses of the credit reporting agencies.

[Anonymous]

To Keenan

If you are refering to my fraud post earlier, I specified that it is fraudulent to dispute ACCURATE entries.  If you were not refering to my statement no harm no foul....LOL. 

Anyways, disputing inacurrate info is fine (assuming you are not trying to get a loan right now... as the disputes will need to be closed).  But, just doing the blanket dsipute thing is considered fraudulent.

Also, to the poster who was talking baout the banks not loaning and the 620 midscore, that is FHA.  Even though FHA does not have a minimum credit for approval, they are telling the lenders that they will be held responsible for any loans that come back down the road as bad and the a "prudent" approach is a 620 minimum.  Most banks that are still doing sub 620 loans are either using that as a "sales" approach to get you in the door hoping your score comes up, or they are trying to send you through with compensating factors.  The simple truth is that most people with sub 620 scores will not have the down payment, reserves. or low DTI factor to actually get pushed through on compensating factors.  Thats why so many people on the board have lost deals lately because some LO's are still telling people stuff that they can't get done except in 1 out of 10 cases.

A year ago it was the same thing with people trying to sell loans with 520 scores and the minimums moving up to 580.

[Anonymous]

Think of it as two seperate requirements.

First you need a 620+ score.

Then your lender puts together a file about you and sends it to the underwriter. That is where a lot of unpaid collections can get you denied even if you have a 620+ score.

I'm assuming your lender believes your collections are going to be a problem after your score is up so he is actually telling you to work on two *different* things.

1. Raise your score. 2. Pay off old collections.

Once those are BOTH done, you should be preapproved.

And i didn't see if you answered but several people have asked if you have a Pre-approval letter from your lender. Do you have anything in writing at all? If you do, what does it say?

[Anonymous]

I have spent the last three months paying everything off. I do not have a single old collection left owing. My divorce collections I paid and the collections for all the medical bills I accrued last year in January have been paid off. The only balance owing I have on my bureau at all is the Sears credit card that is my mothers which I am an AU with CL $8500 and balance now of $1550.

I received a pre qualification from him for $75000 with 5.85% 30 year fixed. but it was just a pre qual not a pre approval. 

[iwantbettercredit]

You should ask your lender point blank, tell me what I need to do! Do I pay of collection debt or do I lower current cc debt?   Look, noone here has the magic answer because every one's situation is different.  Having your score pop up 40 pts over night usually does not happen.  Score changes happen over time.  You say you have lot of collections. The lender wants to see that you are current. The longer you pay things on time the more your score goes up as long as you keep your debt reasonably low.  I had to pay off most of our collections prior to closing, Iwe were allowed to have somethin like $15,000 in combined bad debt anything more thatn that had to be settled on. I called each one and settled, and paid, and upon paying they faxed me a letter that stated I settled for X amount.  I in turn faxed that to my lender.  Also, some of it was paid off at closing because I actually had equity in the home I was buying.  It really is not abut the score it is about the amount of bad debt you have in conjuction with the amount of time you have good accounts .

It is a confusing system for everyone but your lender is the only one who can tellyou exactly what you need to do. 

---

@Anonymous wrote:

Matt,

I have been working on cleaning up my credit over the last few weeks have have settled or paid off all of my collection accounts. My current credit is great no lates for two years. But my score (545-565-588) really suck. My husband (603-595-596) We have taken advise from our lender to clean this stuff up. But I am scared to keep makeing offers if the banks are going to ignore them because of this factor.

How long will it take for these credit agencies to update the changes and how could this effect my credit score? Will it help. What will get me 40 points?

---