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Pros and Cons of getting a mortgage and Zero balance on credit cards - score decreased

Thedutch4
Established Member

Pros and Cons of getting a mortgage and Zero balance on credit cards - score decreased

Hello:

 

My husband has a credit card with a $300 limit...the balance recently was $43, we paid it off in full and today was the 'report' day...it showed at zero, that's good, but his score decreased by 5 points...yikes...his scores are: 657, 642 and 639.  The 639 took the 5 point ding and is now at 634.  WE ARE TRYING TO GET A MORTGAGE BY MID-JUNE...at least get pre-approved with hopes of moving in by end of August, lease is up!  From what I've been reading (and knowing our situation), the only conclusion I have come up with is that his card is showing NO UTILIZATION / USAGE...we haven't used it in months and hence, that may be the cause for the decrease...we are trying (paid almost 2K in last 30 days) to get our cards down to 30% - currently (as of 5/24) we are combined at 56%, our combined credit cards total $9,650.

 

So, here is my concern, I have a credit card with a limit of $750...the balance due was $217, I paid it off...it will 'report' on June 7th (I checked the report date on all my credit cards to see when they report).  I'm afraid that since I have not used this card in a few months and now have actually paid it to zero, there is no utlization / usage as well on this card...I too may be dinged :-(.  I was thinking maybe i should make a small purchase ($25), so that there is some usage on the card, but not much because again we are trying to get as close to 30% as possible...however, frankly, I don't think we'll get there by the time we apply for the mortgage, but, here is where the second part of my question is:

 

As of today (5/24/16) our mid score (between both our scores) is at 612 (this is mine)...once our report updates and shows our utlizaton down to 56% (was 70% when last reported), our scores will go up...hoping to get the mid to at least 620 to 625 when it seems that is the 'magic' number to qualifying for an FHA loan, although i know we could get better rates if our utilizatoin was less.

 

Here are what I think the pros and cons

CONS

Credit Score 612 - as of May 24 2016

Won't be at 30 percent utilization when trying to get pre-approved (mid-June)

One late payment (December 2015) - read FHA post that said no late payments in the past 2 years

 

PROS

Paid $1,937 dollars on credit cards since May 2nd...

In using a calculator online it says we could 'afford' a home over $300K, we are looking more at 195K to 220K

DTI is 25% - 36% seems to be the threshold

Yearly income over 160K

Years on job: 18.5 / spouse retired, pension

Paid judgment (now showing Deleted / Satisfied Paid in full)

Paid 2 collections (total $77.64)

 

What do you think our overall chances are?  WE WILL NOT BE ABLE TO GET OUR UTILIZATION TO 30 PERCENT IN THE TIMELINE WE ARE LOOKING AT.

 

Thank you.

 

 

          
       
         
         
          
           
 
       
          
        
          
Message 1 of 5
4 REPLIES 4
SouthEast80
Valued Contributor

Re: Pros and Cons of getting a mortgage and Zero balance on credit cards - score decreased

There are lenders that will go below 620 but you 'd have to search around for that more than likely. The quickest way to fix your score is to pay down the total utilization below 10% but above 0%. When it reports as 0, people have reported small hits from 5-10 points on their credit reports. Your best bet is to contact a LO immediately and start working with them ASAP to see what they can do for you. Going from 70% to 56% may give you a little boost but I wouldn't bank on this giving you a huge jump in score. But with income over 160k, you may get by with that as a compensating factor.


FICO 8 Scores
TU 752- EQ 751- EX 745

Message 2 of 5
RonM21
Valued Contributor

Re: Pros and Cons of getting a mortgage and Zero balance on credit cards - score decreased


@SouthEast80 wrote:

There are lenders that will go below 620 but you 'd have to search around for that more than likely. The quickest way to fix your score is to pay down the total utilization below 10% but above 0%. When it reports as 0, people have reported small hits from 5-10 points on their credit reports. Your best bet is to contact a LO immediately and start working with them ASAP to see what they can do for you. Going from 70% to 56% may give you a little boost but I wouldn't bank on this giving you a huge jump in score. But with income over 160k, you may get by with that as a compensating factor.


+1

                

Total CL: $304.1kUTL: 3%AAoA: 6.8yrsBaddies: 0Other: Lease, Loan, *No Mortgage, All Inq's from Jun '20 Car Shopping

BoA-55k |DISC-40.6k | PENFED-38.4k | AMEX-37k | NFCU-37k | LOWES-35k | ALLIANT-25k | BARCLAYS-15k | CITI-11.7k | CHASE-10k

Message 3 of 5
takeshi74
Senior Contributor

Re: Pros and Cons of getting a mortgage and Zero balance on credit cards - score decreased


@Thedutch4 wrote:

My husband has a credit card with a $300 limit...the balance recently was $43, we paid it off in full and today was the 'report' day...it showed at zero, that's good, but his score decreased by 5 points...yikes...


If you're going to fixate on the numbers then set a higher threshold.  5 points isn't a significant change.  Scores will vary a bit just from normal activity.  I'd suggest at least 20 points.  Better yet, focus on report data but you'll need to educate yourself on how reports are assessed.  Here's a starting point for FICO scoring.  It won't tell you everything you need to know.  It is just a starting point.

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=revolving+utilization+c...

 


@Thedutch4 wrote:

his scores are: 657, 642 and 639.  The 639 took the 5 point ding and is now at 634.  WE ARE TRYING TO GET A MORTGAGE BY MID-JUNE...


What scoring models and CRA's?  You always need to consider the specific model when referencing scores.  You also need to consider the relevance of a given model/CRA to a given creditor/product as creditors do not all use the same scoring model.  FICO itself has many scoring models used by creditors.  See also the Understanding FICO Scoring subforum and its stickies.

 

If those scores are FICO 8's then keep in mind that mortgage lenders do not use FICO 8.

 


@Thedutch4 wrote:

From what I've been reading (and knowing our situation), the only conclusion I have come up with is that his card is showing NO UTILIZATION / USAGE...


I wouldn't jump to that conclusion.  It's certainly possible but to verify you'd need to compare reports from before and after the scoring change to determine the cause(s).  However, again, I wouldn't recommend sweating over 5 points.

 

It's not the current balance on the card that matters.  It is the reported balance.  The balances and limits on a report are used to determine revolving utilization.  If you know the report date of the account that's another way you can determine what the reported balance is.  When was the payment made?  When is the report date for that account?  Is it a Chase card?  Where are you getting scores from?

 

 

Back up and start with the factors and their typical weights.  Considering these factors when reviewing your reports will indicate to you where you need to focus for maximum gain.

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=revolving+utilization+c...

 

Payment History is the biggest factor.  You must have 100% postitive Payment History and no derogs.  If you have lates, collections, etc then hit the Rebuilding subforum, carefully research before taking action and see what you can do to address those items.

 

Amounts Owed is the next biggest factor and Revolving Utilization falls under it and has a significant impact.  If you have high revolving utilization then get it down.  30% is the suggested max.  It is not ideal, just a suggest maximum.

 

Most other factors just take time and responsible management to build so you're not likely to find any serious gains in such a short span of time.  Addressing derogs can take quite a bit of time.  If you're planning on buying a home you really need to review your reports and begin working on things way in advance. 

 

 


@Thedutch4 wrote:

Won't be at 30 percent utilization when trying to get pre-approved (mid-June)


What will you be at? Again, 30% is a suggested max. Lower is better and revolving utilization has a significant impact.

 


@Thedutch4 wrote:

One late payment (December 2015) - read FHA post that said no late payments in the past 2 years



@Thedutch4 wrote:

Paid judgment (now showing Deleted / Satisfied Paid in full)

Paid 2 collections (total $77.64)


Derogs tend to have a significant impact as long as they are on your reports. You want them all removed if possible. Hit the Rebuilding subforum. See if you can get goodwill removal of the late but understand that the creditor is under no obligation to remove valid information. Is the judgement deleted or is it not? Carefully research in Rebuilding to see if you can negotiate pay-for-deletes for the collections. Paying them won't help much if any. You want removal.

 


@Thedutch4 wrote:

In using a calculator online it says we could 'afford' a home over $300K, we are looking more at 195K to 220K


Regardless of what the calculator says, how are you going to afford a mortgage and associated costs of home ownership if you can't get your revolving utilization down?  Buying the home is just the start of the expenses.

 


@Thedutch4 wrote:

What do you think our overall chances are?


We can't answer that.  We are not underwriters for your mortgage lender.  You need to be discussing this with your loan officer.  Don't overlook the Mortgage subforum.

Message 4 of 5
Thedutch4
Established Member

Re: Pros and Cons of getting a mortgage and Zero balance on credit cards - score decreased

Wow, I just had a chance to circle back to your reply takeshi74.  SMH is all I can say. Oh yea and TO GOD BE THE GLORY! 'drops mic'

Message 5 of 5
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