Credit Scoring and Mortgages

[Remlock]

I've run squarely into a wall trying to elevate my credit score as high as possible.

I have zero credit card debt (five active accounts of significant longevity) and an auto loan I prepaid within 6 months with a $50 pay-off amount and the next payment not being due until late 2013 that's just sitting idle for the sake of extending the duration of the positive entry for as long as possible.  Apart from several hard inquiries courtesy of an overzealous car dealer that was shopping for the best financing commission for itself (that I'm presently having removed), each credit scoring service cites the same factor as being detrimental to my overall score.  My credit history doesn't  contain a mortgage loan.

My wife and I live in a home she bought a year before we met and married.  The simplest solution would be to simply refinance in both of our names, but it's also very costly.  Would a HELOC or being a non-title co-applicant for a home equity loan be considered a real estate loan/mortgage for the purpose of credit scoring?

Thanks.

[Anonymous]

hi! what is your score currently? Any bad marks on your report at all?

[Remlock]

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@Anonymous wrote:

hi! what is your score currently? Any bad marks on your report at all?

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Would my present score or any derogatory items affect whether or not being a non-titled coborrower a HELOC would be considered a bona fide real estate or mortgage loan for scoring purposes?

Thank you. 

[trdmlc]

I'm confused on why you are leaving the unpaid portion of the auto-loan.  Paying this off won't remove the loan from your history.  The only effect is that it won't be an open trade line, which is only considered by a UW during the mortgage process.  Being that it is an installment loan, it doesn't factor into your util percentage.  It will still count in your AAoA even if it is paid and closed.

That said, since it is a minute amount, it's not doing any damage just remaining unpaid for the time being. 

Are your CC updating on your report on a regular basis.  You may want to make a small purchase on one card per month, then pay before the cycle date so that the CC company updates.  Also, leaving a small balance on one (<10%) is sometimes recommended to increase your score.

If doing a refi/HELOC will have adverse affects on your finances, I would not do it for the sake of increasing your score.  Do you have a purpose for wanting to increase your score, other than just having it higher?

[Remlock]

Because the nominal auto loan balance doesn't meaningfully affect by debt to income or cash flow determinants, leaving it unpaid with a $50 means it's guaranteed  to continue reporting each month as a current (present) trade line for at least the 3 years it's been been prepaid, and this serves MANY benefits, both real and potential.  First, every additional month it reports  (provided reporting laws don't change) pushes back the date at which it will no longer be reported as a positive trade ten years thereafter.

Second, because not every lender, or every type of lender, accepts the FICO model as gospel, having a 3 year loan paid on-time may very well weigh more beneficially than an equivalent loan paid over 6 months, particularly if the scoring model being used also happens to consider the lender's profit potential based upon past payment activity and behavior, something the reshaping of how credit is granted will only make more likely.

Finally, it would be silly to presume that the "scoring" models used today, or even the laws that exist today, will continue to be the same that will be used/in-effect at any point in the future.  Particularly given an Administration and Congress that seems to have made themselves drunk on the practice using the ends to justify their means to affect all manner of retroactive rewrites of standing law to favor themselves or any group with a strong-enough lobby, all bets are off in terms of any kind of certainty that today's rules are likely to be tomorrow's.

The ONLY compelling reason to pay-off the remaining $50 would be if the fact that it continues to report as a $400 monthly obligation (the original monthly payment amount), or if having a closed trade-line, no matter how short-lived somehow were be more beneficial to credit scoring than one that's current and active.  Or, I suppose, if I just wanted the security of having title in hand.  But since there's no discernible downside, and only very beneficial potential upsides,  I'm perfectly content to leave it like it is, unless there's any reason why not paying it off would make other credit harder to obtain.

That said... any insight to the original question of whether or not a HELOC (or any other kind of HEL) reports as a real estate or mortgage loan?

Thanks.

[Anonymous]

Do any of your credit cards report a balance on the statement? If not, you should let at least one report a balance. A total utilization of at least $1 will generally be worth a few points more than a $0 total revolving balance.

The fact that "no mortgage" is cited as a negative factor just means that the reason-generating program was unable to find anything more relevant. Not having a mortgage as part of the credit mix category of Fico scoring does not affect a huge number of points. Do you have both bank credit cards and store credit cards in addition to the auto loan? If so, that should suffice for your situation. Adding an unnecessary tradeline such as a mortgage is getting into the tweaking-for-the-sake-of-tweaking realm.

Although HELOCs are technically secured by a home, they are functionally semi-open-ended revolving accounts and are treated as such by Fico. HELOCs with higher limits are disregarded entirely. I don't believe adding a HELOC account will qualify as adding a mortgage for the credit mix scoring component, although someone more knowledgeable may be able to weigh in about that.

It's difficult to give further advice with absolutely no idea of your current Fico score range. If no mortgage loan or new auto loan is anticipated in the near future, and if your current score is reasonably good, the best action is to let accounts accumulate age, keep utilization close to zero (but not actually at zero), and do what is best financially. These days, lenders are looking more and more at individual factors in addition to scores. It's quite possible that having a 760 Fico score with a HELOC tradeline might actually be regarded less favorably than having a 750 Fico score without a HELOC by a paranoid bank, potential employer, insurance underwriter, etc.

[Anonymous]

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@Remlock wrote:

Because the nominal auto loan balance doesn't meaningfully affect by debt to income or cash flow determinants, leaving it unpaid with a $50 means it's guaranteed  to continue reporting each month as a current (present) trade line for at least the 3 years it's been been prepaid, and this serves MANY benefits, both real and potential.  First, every additional month it reports  (provided reporting laws don't change) pushes back the date at which it will no longer be reported as a positive trade ten years thereafter.

Second, because not every lender, or every type of lender, accepts the FICO model as gospel, having a 3 year loan paid on-time may very well weigh more beneficially than an equivalent loan paid over 6 months, particularly if the scoring model being used also happens to consider the lender's profit potential based upon past payment activity and behavior, something the reshaping of how credit is granted will only make more likely.

Finally, it would be silly to presume that the "scoring" models used today, or even the laws that exist today, will continue to be the same that will be used/in-effect at any point in the future.  Particularly given an Administration and Congress that seems to have made themselves drunk on the practice using the ends to justify their means to affect all manner of retroactive rewrites of standing law to favor themselves or any group with a strong-enough lobby, all bets are off in terms of any kind of certainty that today's rules are likely to be tomorrow's.

The ONLY compelling reason to pay-off the remaining $50 would be if the fact that it continues to report as a $400 monthly obligation (the original monthly payment amount), or if having a closed trade-line, no matter how short-lived somehow were be more beneficial to credit scoring than one that's current and active.  Or, I suppose, if I just wanted the security of having title in hand.  But since there's no discernible downside, and only very beneficial potential upsides,  I'm perfectly content to leave it like it is, unless there's any reason why not paying it off would make other credit harder to obtain.

That said... any insight to the original question of whether or not a HELOC (or any other kind of HEL) reports as a real estate or mortgage loan?

Thanks.

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Ok.  I'm assuming you made a principal payment for the amount of all minus $50 and not the principal + interest for the remainder of the loan.  So at this rate, the $50 remaining balance would still generate monthly interest but just for a few pennies.  Is that the case or was there an underlying clause on the agreement you took?