FICO Scoring Problem for Mortgage Refinance

[Investor_Llew]

I'm an investor in Real Estate and I tend to hold most of the properties in my name.

What I am finding out is that when I refinance into a better loan, this tends to bring down my FICO score.

At first I didn't know why because I never check my FICO after the re-finance.

But now that I am taking a better look, I have noticed that when I do a re-finance it will drop my score significantly.

I only noticed this because on Credit Bureau picked up on the refi and another didn't. This caused a difference of 60 points (a 733 versus 793).

Basically, when you refi a Mortgage, the old Mortgage is "Closed" and you acquire a new Mortgage.

Obviously, this is a problem if the FICO score looks at older Mortgages as being closed in a negative way.

This presents an obvious problem for me since I tend to buy more homes or refi into better mortgages.

A refi of an old mortgage closes that mortgage and makes it seem like the new mortgage is not a replacement. That's true technically, but to me, it should be seen as continues history of the old mortgage.

For instance, I bought my 1st property in 1998. Refinanced in 2000 as the interest rates dropped. Refi'd again in 2005 to take out money as the property value trippled so I can purchase another investment property.

What this did was actually cause a drop in my FICO score as the older mortgages gets closed and those histories are removed from the calculations.

Does anyone know if my observations are correct and if there is a way to get this fixed or to protest FICO to take this into better account in the future?

I don't see a way to get around this problem if it is true.

Investor Llew

[MidnightVoice]

As far as I know, in theory, a refinance should not hurt your FICO much.  However, to refinance the mortgage company needs to do an inquiry, whcih can cause a decrease in the short term.  If you are only doing it on one proerty, I don't see that it will hurt in the long term, especially with a 720+ score, and espacially if all your other indicators are good.  For example - when you refinaced, did you use your credit cards more foe a while?  If you did, this will ding your score more than the refinance, possibly even if you PIF - your utilization might have gone way up.

You could check and compare CRs before and after a ReFi and see what exactly is changing.  And I like the myFICO versions, because they put in all the details 

If you are doing multiple proerties one after the other, the computer might well get confused.

[n2win]

When I recently refi'd my mortgage (primary residence) my EQ went UP 6 points and the TU went DOWN 20 points (don't know about the EX yet)

my .02 

[smallfry]

The refi is a new account. Do enough of them and it will kill average age and so on and so forth. Financial and FICO sense are not always the same.

[Anonymous]

When you refi a home or auto, your new account should reflect the original date from the first carrier.

I bought a car through Wachovia in May and refi'd through NFCU a few months later. The Wachovia acc't was closed, and the NFCU account shows the opening date of May, instead of Aug when I refi'd.

If this doesn't happen, you can call and ask to have it fixed

[Anonymous]

Sorry to disagree Ivy, but I've never had a refi show the orig date -- it always comes with new terms, since it's a brand spanking new loan.

Any acct that has been sold or transferred has reflected the orig open date.

I'm curious to see if anyone else has had a refi show the origin date of the first loan.

[smallfry]

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@Anonymous wrote:

Sorry to disagree Ivy, but I've never had a refi show the orig date -- it always comes with new terms, since it's a brand spanking new loan.

Any acct that has been sold or transferred has reflected the orig open date.

I'm curious to see if anyone else has had a refi show the origin date of the first loan.

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Same here Peas. It is a new account period. If Ivy was lucky enough to have it report that way more power to him/her. Not my experience though.