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Real Advice on preparing to obtain a mortgage

Member

Real Advice on preparing to obtain a mortgage

I need realistic advice on how to have the highest score when I apply for a mortgage in two months. A year ago I first started using the simulator and I was advised to continually pay down my outstanding balances and by the time I applied for a mortgage I would have a 742 score.

 

I have spent the past year steadily paying down debt to the point that I have less than $12k total between revolving ($5.5k) and installment ($6.5k). I have 21 total accounts, only 4 of which have balances - a credit card (less than 20% utilization), a bank line (less than 20% utilization), a car lease expiring in August and a student loan paid down to 50% of the original balance. My last late payment was 4 years ago.

 

Now my problem. I have watched my credit score stadily rise over the past nine months, ultimately reaching 730 a month ago. Today the score dropped to 726, and the reason stated was that, "The balance on one of your accounts decreased by 5%".

 

According to the simulator, by continually paying down my debt, my score should have gone up. In practice, paying down my debt is causing my score to decrease! I was actually about to use my tax refund to eliminate all my remaining debt - but now I am concerned doing so will negatively impact my mortgage application. This doesn't make sense to me and I need some good advice on how to get my score back up.

 

Thank you in advance.

 

Bob 

14 REPLIES
Established Contributor

Re: Real Advice on preparing to obtain a mortgage

My first question are those Vantage scores, Fico 8 or Fico morgage scores?  At this point I would only worry about morgage scores,     

Message 2 of 15
Community Leader
Valued Contributor

Re: Real Advice on preparing to obtain a mortgage

First, don't payoff all of your installment debt until after the mortgage. You will lose points if you have $0 installment debt. Second, the alerts only tell you why the alert was triggered, it doesn't necessarily correspond with a change in credit score. Ultimately, having all revolving debt except 1 credit card report $0 will maximize your score. The card that does report a balance should report less than 9%. Have you pulled your mortgage scores?


EQ 679 EXP 700 TU 763
Message 3 of 15
Community Leader
Senior Contributor

Re: Real Advice on preparing to obtain a mortgage

Great advice thus far.

 

Mortgage lenders use different scoring models than FICO 8 or Vantage.  So it is important to pull your FICO mortgage scores -- at some point.  The problem is that pulling your mortgage scores costs money (at least $30 each time).  If you want to avoid the extra cost, one option would be to get your reports optimized to score as perfectly as possible with respect to the mortgage models.... and then pull your mortgage scores.

 

As far as revolving debt goes, the optimal reporting configuration for the mortgage models is all cards (LOCs, etc.) at $0 except one.  The remaining card should be reporting something small, like $20 say.

 

As far as installment debt goes, you should definitely not pay off any of your loans (thanks medicGrrl).  But it may help your EX mortgage score if you pay down some of your balances on the loans, while leaving enough to assure yourself that no loan will be paid off prematurely.  (Loan paydowns will not help your EQ or TU mortgage scores.)  We can better advise you on that if you tell us the amount you currently owe on each open loan and the amount that loan was originally for.  E.g....

 

Loan 1.  Balance = ____   Original amount = ____

Loan 2.  Balance = ____   Original amount = ____

Loan 3.  Balance = ____   Original amount = ____

etc.

 

You mention that you will be applying for a mortgage in two months.  That could mean just an initial pre-approval so that you can begin shopping for a house, with the final closing on the property not happening until November (say).  Or it could mean you plan to be living in your new house 90 days from now.  Can you clarify when you guess you will likely be closing (best guess)?

Message 4 of 15
Super Contributor

Re: Real Advice on preparing to obtain a mortgage


RSLockett wrote:

I need realistic advice on how to have the highest score when I apply for a mortgage in two months. A year ago I first started using the simulator and I was advised to continually pay down my outstanding balances and by the time I applied for a mortgage I would have a 742 score.

 

I have spent the past year steadily paying down debt to the point that I have less than $12k total between revolving ($5.5k) and installment ($6.5k). I have 21 total accounts, only 4 of which have balances - a credit card (less than 20% utilization), a bank line (less than 20% utilization), a car lease expiring in August and a student loan paid down to 50% of the original balance. My last late payment was 4 years ago.

 

Now my problem. I have watched my credit score stadily rise over the past nine months, ultimately reaching 730 a month ago. Today the score dropped to 726, and the reason stated was that, "The balance on one of your accounts decreased by 5%".

 

According to the simulator, by continually paying down my debt, my score should have gone up. In practice, paying down my debt is causing my score to decrease! I was actually about to use my tax refund to eliminate all my remaining debt - but now I am concerned doing so will negatively impact my mortgage application. This doesn't make sense to me and I need some good advice on how to get my score back up.

 

Thank you in advance.

 

Bob 


1. Don't apply for anything.

2. Keep paying the credit card down but not to zero, keep it at $25 or so; if you do pay it to zero, make sure you have a small balance report on another credit card before you pay the first one down to zero.

3. The balance decrease did not cause the score drop; the 2 were unrelated.

4. You can pay the personal line of credit down to zero.

5. Pay the student loan and car lease down to 5-9% of the original amount, but not to zero.

6. Forget the simulator. First, it's not accurate. Second, it purports to relate to FICO 8 which is not a mortgage score.

7. If you want to know what your mortgage scores really are, subscribe to MyFICO's Premier 3B service until the mortgage process is over.

 

 

FICO8 EQ 725 TU 752 EX 736 Total revolving credit 454300
Message 5 of 15
Valued Contributor

Re: Real Advice on preparing to obtain a mortgage

I'll add that in addition to following the advice above before applying for a mortgage, you should continue to follow it until you close. There could very easily be a soft pull on the closing date. You don't want to have any surprises.

Message 6 of 15
Member

Re: Real Advice on preparing to obtain a mortgage

Thank you for the reply.  It is the score that comes from FICO Scorewatch, which I believe is Equifax. I am not sure what version it is.

Message 7 of 15
Member

Re: Real Advice on preparing to obtain a mortgage

Thank you for the reply. How do you specify what type of score you want? I am using FICO Scorewatch which is a monthyl subscription service. Is there something else you recommend?

Message 8 of 15
Member

Re: Real Advice on preparing to obtain a mortgage

Thank you for the reply. I am planning on moving in 60 -90 days and plan on making an offer in my new location. I am using the Scorewatch program from FICO to keep track of my score.

 

Per your request, I have the following balances

 

Credit card  = $2900 paying $350/month

Installment  = $2100 Paying $150/month

Student Loan = $4,420 paying $98/month

Auto Lease = $2239 paying $339/month

Message 9 of 15
Member

Re: Real Advice on preparing to obtain a mortgage

Thank you for the reply and the advice. I do have one question about your response number 3. This was the email alert I received:

 

4/26/2017 Equifax 
The balance on one of your accounts has decreased by 5%
FICO' SCORE CHANGE
726 44

Any idea whay it would say that. In the original email is the circle graphic showing the score going from 730 to 726.

Message 10 of 15