Are FICO Scores really as important as we think?

Anonymous · ‎06-01-2017

Maybe the Dave Ramsey propaganda is beginning to sink in, but I've been thinking about it. I was discharged of my Chap 7 Bankruptcy in Feb. 2015. This shed about $30,000 in credit card debt. I've bounced back to a 700 FICO score with no debt and over $13,000 in savings.

What has me thinking about this is I was talking to a friend about his mortgage process when he was buying his new house. They wanted every piece of information about his personal financial life. It seems like most banks work this way and do their own version of manual underwriting. A person who has horrible credit but has a high guaranteed cash flow is more likely to be approved for a mortgage than a jobless person with perfect credit.

Am I wrong? If a person wants to do the Dave Ramsey thing and swear off all credit except for mortgages, is your actual FICO score really that important? (And yes, I realize some employers and insurance agencies look at credit. I'm not talking about those).

Anonymous · ‎06-01-2017

Ramsey is a nutter in my opinion. I have never once followed his ridiculous premises that sell books or whatever snake oil he pushes.

I bought my first home out of high school for cash, rented it out, never had a mortgage. The mortgage, beyond any reasonable doubt, is what tied many of my friends and colleagues down to a housing market when I always just rented my properties out when job offers elsewhere paid more money.

I would hate to be stuck with a mortgage and unable to move when my previous payraises were double what I was making if I was willing to move at a moment's notice.

Anonymous · ‎06-01-2017

Ramsey's advice to stop using credit cards can be spot on for many people who have a history of debt trouble. It's a proven fact (by psychologists) that credit cards induce almost everyone to spend more than they would if they had to pull actual cash out of their wallet each time. So this far Ramsey can be helpful (for certain folks).

Where his advice is ridiculous is where he insists that you must CLOSE all credit accounts. Willfully harming your FICO score does you no favors. You can pay off all your CC debt, lock your cards away where you can't see them and put a small recurring purchase on them (it could recur once every six months). That will keep your score great, and indeed it will continue to get better over time.

And yes, having a good FICO score can be immensely helpful when buying a car or a house. That leaves as a completely separate question whether buying a house makes financial sense for a given person -- and I would argue that buying is overrated. It can of course be the right decision, but it is not always right, and there is a lot of irrational worship of home ownership that can induce a person to buy when it is not ideal for his particular situation.

newhis · ‎06-01-2017

Let's say that FICO Scores are eally important for some things and not so much for anything else.

Anonymous · ‎06-01-2017

@Anonymous wrote:
Maybe the Dave Ramsey propaganda is beginning to sink in, but I've been thinking about it. I was discharged of my Chap 7 Bankruptcy in Feb. 2015. This shed about $30,000 in credit card debt. I've bounced back to a 700 FICO score with no debt and over $13,000 in savings.

What has me thinking about this is I was talking to a friend about his mortgage process when he was buying his new house. They wanted every piece of information about his personal financial life. It seems like most banks work this way and do their own version of manual underwriting. A person who has horrible credit but has a high guaranteed cash flow is more likely to be approved for a mortgage than a jobless person with perfect credit.

Am I wrong? If a person wants to do the Dave Ramsey thing and swear off all credit except for mortgages, is your actual FICO score really that important? (And yes, I realize some employers and insurance agencies look at credit. I'm not talking about those).

I think the bottom line is the ability to PAY the mortgage vs not having employment

Thomas_Thumb · ‎06-01-2017

@Anonymous wrote:
@Anonymous wrote:
Maybe the Dave Ramsey propaganda is beginning to sink in, but I've been thinking about it. I was discharged of my Chap 7 Bankruptcy in Feb. 2015. This shed about $30,000 in credit card debt. I've bounced back to a 700 FICO score with no debt and over $13,000 in savings.

What has me thinking about this is I was talking to a friend about his mortgage process when he was buying his new house. They wanted every piece of information about his personal financial life. It seems like most banks work this way and do their own version of manual underwriting. A person who has horrible credit but has a high guaranteed cash flow is more likely to be approved for a mortgage than a jobless person with perfect credit.

Am I wrong? If a person wants to do the Dave Ramsey thing and swear off all credit except for mortgages, is your actual FICO score really that important? (And yes, I realize some employers and insurance agencies look at credit. I'm not talking about those).
I think the bottom line is the ability to PAY the mortgage vs not having employment

The major component for mortgage loans is debt to income ratio (DTI) regardless of credit score. DTI has to be below certain thresholds to qualify for a loan.

Income does not need to come from "a job". It can come from rental properties, investments, pensions, 401k distributions and other sources..

Fico 9: .......EQ 850 TU 850 EX 850
Fico 8: .......EQ 850 TU 850 EX 850
Fico 4 .....:. EQ 809 TU 823 EX 830 EX Fico 98: 842
Fico 8 BC:. EQ 892 TU 900 EX 900
Fico 8 AU:. EQ 887 TU 897 EX 899
Fico 4 BC:. EQ 826 TU 858, EX Fico 98 BC: 870
Fico 4 AU:. EQ 831 TU 872, EX Fico 98 AU: 861
VS 3.0:...... EQ 835 TU 835 EX 835
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950

StartingOver10 · ‎06-01-2017

^^^Yes, DTI is extremely important for a mortgage. So is your FICO score (not FICO 8s or 9s, but the scores commonly used for mortgages). If your friend didn't have at least the required score that met the guidelines for the mortgage program - he would have been denied.

As Thomas Thumb points out, income doesn't have to come from employment.

As to "manual underwriting": that's how mortgages are processed. Despite the' rocket mortgage' commericals, the documentation has to be provided to the lender to process including proof of income (for most mortgages), credit and current debt. There are a bunch of verifications done behind the scene that the borrower authorizes but normally doesn't realize. However, if your score doesn't meet guidelines, you won't get the mortgage. It's just that simple.

Note: If you can pay cash for the home, then you don't need to qualify for a mortgage. However, in some communities in my area you still wouldn't be able to buy it unless you have a score above X. This is determined by the HOA/Condo association and has nothing to do with bank approval. So yes, credit scores are important. JMO

Anonymous · ‎06-01-2017

Okay doky...I guess I should have just said "the ability to pay" as the biggest factor (I did not mention FICO because I was strictly giving MHO on that one sentence )

and not to rub any feathers wrong..

no matter what your FICO is, if you can't show the ability to pay the note each month you won't get approved...if anyone knows of such company, please tell me so I can let a few folks I volunteer with so they can move out of the homeless coalition

Anonymous · ‎06-01-2017

My income for 25 years comes on a K-1 form. Almost zero is W-2. I never had a mortgage in my life but my mortgage buddy says my income and down payment would buy me whatever mortgage I want even when my FICOs were 520. Hard money lender versus standard loans.

In 2009 after the bubble popped I saw hard money offers around 2.6% -- lower than any standard mortgage although with hefty down payment and only 3-7 year loans.

Bad FICO hurts unsecured credit. But secured loans like mortgages or cars? FICO doesn't matter much if you have income and a down payment.

StartingOver10 · ‎06-01-2017

@Anonymous wrote:
My income for 25 years comes on a K-1 form. Almost zero is W-2. I never had a mortgage in my life but my mortgage buddy says my income and down payment would buy me whatever mortgage I want even when my FICOs were 520. Hard money lender versus standard loans.

In 2009 after the bubble popped I saw hard money offers around 2.6% -- lower than any standard mortgage although with hefty down payment and only 3-7 year loans.

Bad FICO hurts unsecured credit. But secured loans like mortgages or cars? FICO doesn't matter much if you have income and a down payment.

Wow...I have never seen hard money at that rate. Even at the worst time during the mortgage meltdown the hard money rate here in S Florida was above 9% + points and now it is higher than that....Even bank statement loans are above 7% and they have certain score requirements.

I was thinking of standard mortgages (FHA, VA, USDA, conventional) and not hard money when I replied so you are right. Hard Money doesn't look at scores as they are collateral loans only.