Thinking House in a Year. What do I need to do NOW? Credit history and total accounts question

[Anonymous]

My wife and I would like to purchase a house soon and I want to make sure our credit reports are tip top by the time we are ready.  We have only checked our scores on Credit Karma which I understand may be innacurate.  But in reviewing both of our credit reports on CK, I feel like I can see a few opportunities for us to better our credit regardless of what our current credit score is.

According to CK, my score is 765, and my wife's score is 710.

The worst aspects of my score are age of credit history and total accounts.  I was a big dumb dumb and cancled a credit card that I had for almost 10yrs, I also paid off all of my student loans this year so my age of credit history is now very low at 1yr, 7mo.

The other poor mark on my report is Total Accounts which sits at 10 right now.

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As for the Spouse, she is in a similar boat, her age of credit history is about 3yrs because of some student loans she took out a couple years ago, but she does have a credit card that is 8yrs old.  We already have the money to pay her loans off but they are subsidized so I am not in a big hurry.  When I pay those loans off her credit history will increase.

Her total accounts sits at 6 which is considered "poor" on CK.

Every thing else on BOTH of our credit reports is listed as "Excillent" on CK which includes Utilization, Payment History, Derogatory Marks, and Credit Inquiries.

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Here is my proposal and I would really appreciate feedback.

I get added onto my wifes 8yr old credit card as a joint card holder or authorized user to increase my credit history, and total accounts.

As for my wife, she is currently in school and I now make enough money to where she no longer needs to accept student loans, I am paying the tuition.  My idea for her is to go ahead and take student loans out every semester and I will just those off instead.  The idea is, that while they will temporarily decrease her age of credit history, if we pay them off right away they will just be considered in her total accounts and age of credit history will be unafected in the long run.  This way my wifes total accounts increases.  My question on this is, would it look bad if the reported final payment for a loan is the full amount?  Or will it look bad that the loan was paid off right away?  What is the correct way to go about this?  and lastly do student loans get listed as a hard credit inquiry on her score?

Finally, is all of this even a good idea or worth doing?

[RobertEG]

You might do so checking as to how your prospective lendor views or deals with AU accounts before adding an AU to your file.

Mortgage lendors will do a manual review, and will know that your score is affected by an account of another.

A creditor cannot back-out the effect of an AU on your scoring, and if they wish to see a score representative of your own personal risk assessment, may require removal of the AU as part of the process.

[Anonymous]

First thing to do NOW.  Start ignoring the scoring and suggestions on Credit Karma.  I am sure someone long winded will come along shortly to explain all of the whys.

Quickly, you don't need a bunch of accounts and CK is showing you average age of open accounts.  Average age of accounts is what will be used in your FICO score.  This will include your closed accounts that continue to age for 10 years if they were positive accounts.

Pay the $60 for a 3B report here.  This will give you you mortgage scores.  Knowing those scores will help you decide what to do next, if anything.

From reading your narrative, I suspect your will be pleasantly surprised at your FICO mortgage scores.  Good luck and keep us updated.

[Anonymous]

The whole idea from CK that having just 10 accounts is poor and dragging your FICO score down is ridiculous.

I'm not suggesting CK is outright lying, and I assume there is some basis in the Vantage score to support this claim (at least for a few people). But I strongly suspect that they cherry-pick that out of all of the factors and include it is the mix just so that you're more inclined to click through their affiliate links and apply for cards. That is a revenue source for them.

[StartingOver10]

OP - first thing to do is to start learning about mortgages and mortgage scores. Check the mortgage section here on MyFICO for that part.

Pull your credit reports from www.annualcreditreport.com so you can see all the info about each tradeline.

Cancel all AU accounts.  AU accounts mask your score so mortgage lenders don't want them on your report at all.

Remove all disputes - disputes also mask your score. Note: even if the dispute is resolved but there is a remaining dispute comment, have it removed as the automated systems can not differentiate between a dispute that is resolved or one outstanding. The lenders will require their removal. Best for you to know your actual scores with both AU and disputes removed (using the mortgage scores only).

Save - save - save for down payment, closing costs, pre-paid expenses, moving expenses, reserves - the list is long.

Once you see your actual non-masked scores, then you will have a better idea of what you need to do.

[takeshi74]

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@Anonymous wrote:

My wife and I would like to purchase a house soon and I want to make sure our credit reports are tip top by the time we are ready.  We have only checked our scores on Credit Karma which I understand may be innacurate.

All scores are acccurate but only for their own models.  You cannot use a score generated by one model to determine a score generated by another model.  CK's scores are only relevant to creditors and products that use a TU or EQ VantageScore.  I'm not aware of any mortgage lender that uses VantageScore.

Even with FICO you need to pay attention to the specific model and CRA and the relevance of the model/CRA combo to a given creidtor/product. FICO 8 may be the most commonly used model but it is not used for mortgages either.  One of the older models like FICO 4 is typically used.  See also the Understading FICO Scoring subforum and its stickies for info on the various FICO models used by creditors.  Also don't overlook the Mortgage subforum as a resource.

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@Anonymous wrote:

The worst aspects of my score are age of credit history and total accounts.  I was a big dumb dumb and cancled a credit card that I had for almost 10yrs, I also paid off all of my student loans this year so my age of credit history is now very low at 1yr, 7mo.

The other poor mark on my report is Total Accounts which sits at 10 right now.

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CK can be a usefull tool but you need to be careful relying on it and, instead, read up and educate yourself on understanding how your reports are assessed.  CK's assessments of factors relies on correlation.  People with higher scores tend to have more accounts but 21+ accounts are not required for a high score.  Keep in mind that correlation and causation are not the same thing.

Additionally, CK does not consider closed accounts when determining AAoA.  CK acutally determines AAoOA.  FICO models use AAoA and consider closed accounts.  Closing accounts does not reduce your AAoA immediately.  Closed accounts typically remain on your reports and factor into AAoA for 10 years.  Opening accounts, however, will reduce AAoA.  The impact of a new account will depend on one's AAoA.  Generally speaking, more accounts and older accounts will help to reduce the impact to AAoA from opening a new account.  Consider how averages work.  AAoA is just an average of the ages of the accounts.  You can calculate AAoA and potential impact yourself.  If you don't want to do it manually you can use a spreadsheet with date functions, use an online AAoA calculator, etc.

Paying off your student loans may have impacted the benefit you were receiving to Credit Mix if your student loans were your only installments.

Always consider your sources, validate, corrobate, etc.

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@Anonymous wrote:

When I pay those loans off her credit history will increase.

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That's not quite how it works.  "Credit history" is a general and vague term.  You need to consider the standard factors:

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

As long as payments are made on time, one is building Payment History.  A single derog, however, can kill one's Payment History, have a signficant impact on scores and assessment of one's credit and hold one down as long as the derogs is on reports.  As the student loan balances drop, they will improve the balance to loan ratio which helps a bit.  It doesn't have as much impact as decreasing revolving utilization does for revolving accounts lkike credit cards but it does factor into Amounts Owed.  Paying off the student loans will not decrease AAoA.  However, paying offf the student loans will remove the benefit to Credit Mix if they are her only installments.

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@Anonymous wrote:

Her total accounts sits at 6 which is considered "poor" on CK. 

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Again, don't worry over that.  Also note the impact that CK indicates for each factor.  Total accounts has a low impact.  If you want to see big changes then focus on the factors with signficiant impact.  Refer to the link I provided.  There is a bit of overlap between the two but a mortgage lender is going to use a FICO model.

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@Anonymous wrote:

I get added onto my wifes 8yr old credit card as a joint card holder or authorized user to increase my credit history, and total accounts.

Being added as an AU won't help much if you already have your own tradelines.  Don't rely on being an AU.

Learn to assess your own reports and pull them and carefully review them.  This site can be a useful resource, among others for such education.  Pull your mortgage FICO's -- they will be included in the "19 FICO Score versions":

http://www.myfico.com/Products/Products.aspx

so you know where you stand now.  Stop obsessing over number of accounts.

From what you've said so far I don't see any glaring issues that could lead to significant gains.  If your Payment History is 100% without derogs then you're good there.  Just keep it up and never be late.  Do whatever it takes to avoid derogs.  Make sure you're budgeting and sticking to your budget.  If autopay will help you to ensure that you've covered at least the minimums on time then consider using it.  If your revolving utilization is low then keep it low.  If you can get it lower and if it would help when applying for your mortgage then you may want to adjust it to be as low as possible using the "1 balance at 10% or less" general suggestion.  Most of the other factors just take time and responsible management of your credit accounts.  If you're a year out you may want to stop applying for new credit until your mortgage is finalized.  General advice is no new credit 6 months to 1 year prior but that really depends on the stregnths of your credit profiles and how sensitive your mortgage lender is to new accounts.  However, even if your profiles are in excellent shape you don't want new credit close to your mortgage.

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@Anonymous wrote:

and lastly do student loans get listed as a hard credit inquiry on her score?

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The loans are not listed as a hard inquiry.  They're listed as loans.  You incur a hard inquiry when you apply for new credit, generally speaking.

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@Anonymous wrote:

The whole idea from CK that having just 10 accounts is poor and dragging your FICO score down is ridiculous.

CK doesn't actually say that and it indicates that number of accounts has a low impact.  CK says that there is a correlation (again, not the same thing as causation) between number of accounts and scores.  People commonly and mistakenly interpret this to mean that they have to have 21+ accounts for a good score.

[Thomas_Thumb]

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@Anonymous wrote:

My wife and I would like to purchase a house soon and I want to make sure our credit reports are tip top by the time we are ready.  We have only checked our scores on Credit Karma which I understand may be innacurate.  But in reviewing both of our credit reports on CK, I feel like I can see a few opportunities for us to better our credit regardless of what our current credit score is.

According to CK, my score is 765, and my wife's score is 710.

The worst aspects of my score are age of credit history and total accounts.  I was a big dumb dumb and cancled a credit card that I had for almost 10yrs, I also paid off all of my student loans this year so my age of credit history is now very low at 1yr, 7mo.

The other poor mark on my report is Total Accounts which sits at 10 right now.

------------------------------------------------------------------------------------------------------

As for the Spouse, she is in a similar boat, her age of credit history is about 3yrs because of some student loans she took out a couple years ago, but she does have a credit card that is 8yrs old.  We already have the money to pay her loans off but they are subsidized so I am not in a big hurry.  When I pay those loans off her credit history will increase.

Her total accounts sits at 6 which is considered "poor" on CK.

Every thing else on BOTH of our credit reports is listed as "Excillent" on CK which includes Utilization, Payment History, Derogatory Marks, and Credit Inquiries.

-----------------------------------------------------------------------------------------------------

Here is my proposal and I would really appreciate feedback.

I get added onto my wifes 8yr old credit card as a joint card holder or authorized user to increase my credit history, and total accounts.

As for my wife, she is currently in school and I now make enough money to where she no longer needs to accept student loans, I am paying the tuition.  [My idea for her is to go ahead and take student loans out every semester and I will just those off instead.  The idea is, that while they will temporarily decrease her age of credit history, if we pay them off right away they will just be considered in her total accounts and age of credit history will be unafected in the long run].  This way my wifes total accounts increases.  My question on this is, would it look bad if the reported final payment for a loan is the full amount?  Or will it look bad that the loan was paid off right away?  What is the correct way to go about this?  and lastly do student loans get listed as a hard credit inquiry on her score?

Finally, is all of this even a good idea or worth doing?

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As others have said, Fico uses an AAoA and age of oldest account based on both open and closed accounts whereas CK is using open only. So your 10 year old "recently closed" account will continue to influence AAoA and age of oldest account until it comes off your report.

Both you and your wife have a sufficient # of accounts on file to satisfy Fico (but perhaps not CK's desire to market more cards to you). I have 7 open accounts and 2 or 3 closed accounts depending on the CRA. I also rate poor according to CK's # accounts table. The table puts undue focus on # CC accounts when in reality 5 is more than adequate.

Fico score is helped by having an installment loan in your credit history. Usually there is more benefit to score if the loan is still open and most benefit if open with a relatively low balance to original loan ratio (say under 40% and more preferrably under 20% remaining)

[Your wife does not need additional accounts and dropping her AAoA with a bunch of new accounts will likely hurt Fico score - perhaps significantly]. I would suggest one loan only that is maintained substantially paid down.

I would not advise adding AU status to a bunch of accounts at this time. As suggested, get your Fico 3B scores for both you and your wife and then map out a strategy. Now I am not sure if this next statement is correct but my understanding is: A joint mortgage loan may be based on the middle score of the person with the lowest credit score. 

[Anonymous]

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@Anonymous wrote:

The other poor mark on my report is Total Accounts which sits at 10 right now.

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A little more on this. I happen to have coffee this morning with a friend who is a loan officer at a credit union. And I asked him about how he views the number of tradelines on a credit report when evaluating a loan application.

He said that if you have a long credit history, and there are multiple tradelines stretching back over many years, most of which are closed at this point, that is a good thing. For instance, if you'd had multiple different car loans over the past 30 years, all of which were paid as agreed and closed with a zero balance, that would indicate that you are a good credit risk. It's a lot of history to go on.

But, he said, if you have 10 open tradelines when you applied for a loan, that would be a huge red flag. It would raise all kinds of questions that he would want answers to before he'd approve the loan.

[Thomas_Thumb]

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@Anonymous wrote:

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@Anonymous wrote:

The other poor mark on my report is Total Accounts which sits at 10 right now.

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A little more on this. I happen to have coffee this morning with a friend who is a loan officer at a credit union. And I asked him about how he views the number of tradelines on a credit report when evaluating a loan application.

He said that if you have a long credit history, and there are multiple tradelines stretching back over many years, most of which are closed at this point, that is a good thing. For instance, if you'd had multiple different car loans over the past 30 years, all of which were paid as agreed and closed with a zero balance, that would indicate that you are a good credit risk. It's a lot of history to go on.

But, he said, if you have 10 open tradelines when you applied for a loan, that would be a huge red flag. It would raise all kinds of questions that he would want answers to before he'd approve the loan.

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Loans that are paid off over time and then closed are a good thing as the loan officer mentioned. A bunch of recent short term student loans opened/closed in quick succession would not be looked at in the same positive light. One student loan with steady payments and a low balance might come across better.

Many, many people have 10 or more open tradelines - most are revolving credit cards. Not sure that credit cards are an impediment for getting a mortgage. Open CC accounts don't compute as a debt obligation if you don't have a balance on them.

The key factor is debt to income ratio.  I suspect the LO was referring to multiple loans (not CCs) as being the huge red flag.