topic Re: Score assistance - 791 in Understanding FICO® Scoring

Score assistance - 791

dcg9381 — Wed, 02 May 2018 14:43:57 GMT

About to finance a house, so I've been making zero drastic moves in credit.

I've paid off a substantial automobile loan and since then, my credit score has been creeping lower into 790s.

For "ideal" terms on mortgage loans, I need to be above 800.

FICO is indicating (Not sure which agency) two factors negatively impacting my score:

Lack of recent installment loan information
Proportion of balances to crdt limits is too high on bank revolving accts

In regard to #1 - I've paid off all installment loans and simply don't have any. Nor do I have a mortgage. I expected that clearing a substantial auto loan would help my score, not hurt it.

In regard to #2 - I AM carrying a 0% balance on a CC. About a $8k balance on a $17k credit line. I can pay this off, but it affects my cash position. I have another card, around $20k in credit line, but is paid every month.

The $8k balance is the only debt that I have at all, my income "above average".

Advice? Seems that I should find some relatively minor installment loan (which seems silly) and I should either pay off that 0% interest line of credit or request a credit line increase to get utilization below 30%.

Re: Score assistance - 791

Anonymous — Wed, 02 May 2018 15:43:30 GMT

Welcome! My comments in blue below.

@dcg9381 wrote:
About to finance a house, so I've been making zero drastic moves in credit.

I've paid off a substantial automobile loan and since then, my credit score has been creeping lower into 790s.
For "ideal" terms on mortgage loans, I need to be above 800.

What kind of home purchase are you anticipating? Almost all mortgage lenders look for a 740 to get best rates on the mortgage itself, and 760 for best rates on PMI. Who is telling you that you need an 800?

FICO is indicating (Not sure which agency) two factors negatively impacting my score:
Lack of recent installment loan information
Proportion of balances to crdt limits is too high on bank revolving accts

FICO is a company that makes credit scoring models. A credit scoring model takes all the credit information on a report and turns it into a score. The data for a credit report reside at one of three bureaus (Equifax, TransUnion, Experian) also called a CRA. The bureau is probably what you meant when you said you were not sure what agency.

Since your home purchase is expected to be very soon, the best step is for you to sign up for the myFICO Ultimate $40/mo package. You will get a detailed 3-bureau report. You will want to focus only on the mortgage scores, which you will find 3-4 pages into the report (not the top). That will give you your true mortgage scores (as well as reports) and help you understand which bureau says what.

In regard to #1 - I've paid off all installment loans and simply don't have any. Nor do I have a mortgage. I expected that clearing a substantial auto loan would help my score, not hurt it.

You are (unfortunately) mistaken. Paying off all your installment debt will not help your score on any models. On some models, it can hurt it significantly. In all likelihood the loan payoffs hurt your EX mortgage score but not your EQ and TU scores.

In regard to #2 - I AM carrying a 0% balance on a CC. About a $8k balance on a $17k credit line. I can pay this off, but it affects my cash position. I have another card, around $20k in credit line, but is paid every month.

We can help you better if you list all your revolving accounts with the balance and credit limit as they appear on your reports. For various reasons it does not matter whether you pay off a card every month. The bureaus don't supply FICO with the data to reliably determine that. What does matter is what your balances are as they appear on the report itself.

I believe you have exactly two credit cards and no other revolving lines. Is that right? I will call those the 0% card and the other card.

The other card should be paid to $0 and then not used for anything until you own your house.

The 0% card balance should be paid down to $3000 and then make sure it never goes over that (until you own the house). A lower balance is fine too, but it sounds like paying the card to (say) $100 would be onerous for you. The scoring goal is to have your total CC utilization (all credit limits combined) at < 8.9%. If it goes any higher you begin to be penalized.

The $8k balance is the only debt that I have at all, my income "above average".

Advice? Seems that I should find some relatively minor installment loan (which seems silly) and I should either pay off that 0% interest line of credit or request a credit line increase to get utilization below 30%.

Obtaining a minor installment loan and then paying off most but not all of it is called the Share Secured Loan Technique. I would not advise it given that you are preparing for a mortgage and you have little time. Paying down your CC debt is the way to go.

Re: Score assistance - 791

dcg9381 — Wed, 02 May 2018 20:06:29 GMT

What kind of home purchase are you anticipating? Almost all mortgage lenders look for a 740 to get best rates on the mortgage itself, and 760 for best rates on PMI. Who is telling you that you need an 800?

I'm actually building a custom home, which will be one of a construction to perm financing or construction fiancing and then re-fi to perm. Jumbo. 30-year most likely.

No one is telling me that I "need" an 800, but I assume that "most favorable" term tier is somewhere in that range of 800+, perhaps I'm wrong.

Since your home purchase is expected to be very soon, the best step is for you to sign up for the myFICO Ultimate $40/mo package. You will get a detailed 3-bureau report.

I believe I'm entitled to one "free" yearly report per agency, correct?

We can help you better if you list all your revolving accounts with the balance and credit limit as they appear on your reports.

I can do that - and will double check - but I've really only kept 2 open revolving credit lines:

Line A, $8000 balance, 0% fixed $17,900 Limit, AGE 9 months

Line B, $0 balance, 15% APR, $25,000 limit, AGE 12 years

How about re-balancing that debt between the two credit lines to show utilization under 30%?

How about upping the limit on the $17,900 line?

I can pay down the $8,000 balance. However, I'm also "conserving cash" for the home purchase - I need to be able to show cash on hand to close, etc. And it's "close" on the cash side.

Obtaining a minor installment loan and then paying off most but not all of it is called the Share Secured Loan Technique. I would not advise it given that you are preparing for a mortgage and you have little time. Paying down your CC debt is the way to go.

Re: Score assistance - 791

Anonymous — Wed, 02 May 2018 22:59:35 GMT

My latest comments/responses in green. :-)

@dcg9381 wrote:
What kind of home purchase are you anticipating? Almost all mortgage lenders look for a 740 to get best rates on the mortgage itself, and 760 for best rates on PMI. Who is telling you that you need an 800?

I'm actually building a custom home, which will be one of a construction to perm financing or construction fiancing and then re-fi to perm. Jumbo. 30-year most likely.
No one is telling me that I "need" an 800, but I assume that "most favorable" term tier is somewhere in that range of 800+, perhaps I'm wrong.

You are likely to be mistaken. I would contact a few different mortgage lenders and ask them what FICO scores they look for in a person they would give best rates to. Explain that it would likely be a jumbo, along with other qualifications you just gave. Almost none of them will say that they look for someone with an 800+ when determining best rates.

For example, in this piece on jumbo loans, the author mertions a score of 720 to get best rates. I personally think that may be lowballing it (as I mentioned before 740 is safer with 760 for best rates on PMI). When you talk with the lenders, be sure not to give them your social or they will pull your credit, resulting in a hard iqnuiry, which you do not want.

Since your home purchase is expected to be very soon, the best step is for you to sign up for the myFICO Ultimate $40/mo package. You will get a detailed 3-bureau report.

I believe I'm entitled to one "free" yearly report per agency, correct?

Indeed you are. That report comes from annualCreditReport.com. There are no credit scores that come with it, however. Moreover, the only place to get one's mortgage scores, which are different from other scores, is myFICO. You can of course go to a mortgage lender, give them your social, and then have them pull your scores -- for free. But it will cause a hard inquiry to appear on your reports, which you do not want until you are ready to buy.

As the regulars on here know, I rarely encourage people to buy the myFICO product, since long term it is costly. But in your case you need to know what your mortgage scores are. If you think you will not be taking out the loan for several more months, you can work on getting your reports in perfect shape and then pull the scores.

We can help you better if you list all your revolving accounts with the balance and credit limit as they appear on your reports.

I can do that - and will double check - but I've really only kept 2 open revolving credit lines:
Line A, $8000 balance, 0% fixed $17,900 Limit, AGE 9 months
Line B, $0 balance, 15% APR, $25,000 limit, AGE 12 years

How about re-balancing that debt between the two credit lines to show utilization under 30%?
How about upping the limit on the $17,900 line?

Rebalancing the debt will harm your mortgage scores. You want all cards at $0 except one. The mortgage models like that a lot. Since you only have two cards, that's one reporting $0 and one not.

Based on what you said earlier, I doubt your other card has a $0 balance. You mentioned that you pay the statement in full. That likely means that the card has reported a positive balance. Until you pull your reports you will not know. You should get some tools that enable you to frequently pull your reports. There are some that are free, though you will at some point need your mortgage scores (not the same thing as reports).

Raising your $17k credit imit is not a bad idea, though you would have to be certain you could do that without a hard pull. CLI (creditr limit increase) requests can often result in hard inquiries.

Regardless you want both cards at a utilization of less than 28.9% (each card considered by itself) and a total utilization less than 8.9%.

Your steps moving forward is to consult with several mortgage lenders and ask what scores they look for to get best rates. then pull your current mortgage scores and reports. Then develop a plan to achieve the necessary scores (you may already have them). Assume that your mortgage scores are much less than 791 until you have pulled your true mortgage scores at myFICO.

I can pay down the $8,000 balance. However, I'm also "conserving cash" for the home purchase - I need to be able to show cash on hand to close, etc. And it's "close" on the cash side.

Obtaining a minor installment loan and then paying off most but not all of it is called the Share Secured Loan Technique. I would not advise it given that you are preparing for a mortgage and you have little time. Paying down your CC debt is the way to go.

Re: Score assistance - 791

DollyLama — Wed, 02 May 2018 23:02:34 GMT

@dcg9381 wrote:

No one is telling me that I "need" an 800, but I assume that "most favorable" term tier is somewhere in that range of 800+, perhaps I'm wrong.

Since your home purchase is expected to be very soon, the best step is for you to sign up for the myFICO Ultimate $40/mo package. You will get a detailed 3-bureau report.

I believe I'm entitled to one "free" yearly report per agency, correct?

CGID is referring to the detailed report WITH scores, all scores, mainly the mortgage scores, what lenders usually pull. They most likely will do a tri-merge of your MORTGAGE scores, lenders will go with the "middle" score, tossing out highest and lowest. If with a joint applicant, they will use the lower "middle" of the two applicants.

The free annual credit report just shows what is one it, not mortgage scores, auto scores, bankcard scores. That is why it is worthy of $40 to see where you stand currently.

Re: Score assistance - 791

dcg9381 — Thu, 03 May 2018 14:41:36 GMT

> Your steps moving forward is to consult with several mortgage lenders and ask what scores they look for to get best rates.

Thanks, guys. Speaking to mortgage brokers, 760 is what's required for the particular product I'm looking at.

However, higher credit scores are required in order for the bank to lend in the higher DTI (Debt to Income) range - which is what we are after. We're qualifing for the house on one income (mine). 800 is required for the highest allowable DTI.

This may be a bit of work to avoid attaching 2 incomes to the mortgage.

Let me pull credit and I'll get the exact information that you guys are asking for.

Yes, generally cards that are "paid in full" do reflect prior months balance.

Why does "rebalancing" or splitting the debt across two cards negatively impact score? It seem like this would result in lower credit utilization when considering the cards individually.

Re: Score assistance - 791

HeavenOhio — Thu, 03 May 2018 16:12:45 GMT

Interesting info on DTI.

Three factors go into the revolving portion of one's score:

Overall utilization
Individual card utilization
Number/percentage of cards reporting a positive balance

The good news is that overall utilization is the most important of the above factors. Individual card utilization is determined by the card with the highest utilization. FICO likes to see less than half of one's cards reporting positive balances, and some get scoring benefits by going beyond that.

In your case, with only two cards, one card with a positive balance is the best you can get. With your current limits, bringing the balance on your 0% card down to $3,700 would bring you within the 8.9% overall utilization and 28.9% individual card utilization that generally optimizes scores. (Some do better with lower amounts, but you're not looking to gain piles of points.)

If you can raise the limit on your 17K card, that $3,700 can become a higher number. Let's say that you're able to raise the limit to 20K. You'd be able to leave $4,000 on the card.

Which bank is your 0% card with? We might be able to tell you if a CLI entails a hard or soft pull.

Re: Score assistance - 791

Thomas_Thumb — Thu, 03 May 2018 18:56:59 GMT

It's generally best to report a single balance on your higher limit card only. That often provides additional breathing room on what balance can be reported each month. The maximum you should allow to report is the lesser of:

a) Under 29% of the card's credit limit - round down to the next lower unit of 10

b) Under 9% of aggregate credit limit on all cards combined - round down to the next lower unit of 10

So in your case bases on reporting a balance on the $25k card only combined with an aggregate CL of $42.9k you have:

a) Under $7250 (individual card)

b) Under $3860 (limiting factor is aggregate)

Now if the balance is reported on the $17.9k card then

a) Under $5190 (individual card)

b) Under $3860 (limiting factor is still aggregate)

Some feel it is necessary to have individual utilization under 9% and aggregate under 5% for best scoring potential. I have not seen this myself but, if you want to go there then your benchmarks are:

a) Under $2250 (for $25k CL card) or Under $1,610 (for $17.9k CL card)

b) Under $2140 aggregate

Side note: Not having an open loan substantially paid down has little impact on Mortgage Fico scores [it's more an issue with the newer Fico 8 algorithm - which is not the algorithm used for mortgages].

Re: Score assistance - 791

HeavenOhio — Thu, 03 May 2018 18:48:57 GMT

After reading TT's post, I realize that I did my calculations above based on a 17K limit rather than 17.9K.