Pristine reports, high scores. You have $10K in revolving credit and you show 0% util, which yields a nice score. You get approved for a $100K mortgage, and it's now showing as a $100K debt. This immediately affects your score, because your overall util is high.
Now, let's say you had $100K in revolving credit before getting approved for the $100K mortgage. Assuming, you keep this $100K revolving CL at 0% util still, wouldn't having such a high available CL in revolving credit 'dilute' the overall debt and keep the debt to util ratio down, thereby keeping your score from dropping much as it otherwise would?
Am I not understanding this correctly? I'm this makes sense, then when someone accumulates quite a high CL in revolving credit just for this purpose, even if they don't ever get to use it, it would still help them manage the scores in a better way when dealing with a mortgage? Thoughts?
Don't mistake revolving debt with installment or mortgage debt. Revolving debt is what matters for the utilization you're thinking about.
Message Edited by db23 on 10-16-2007 10:07 PM
In your example, I would bet that your score would go UP not down.
Mortgages do not factor in installment util% calculations, but I do agree having one reporting does improve credit mix.
Obtaining a new mortgage affects %install loan util, and not %revolv util. The increased %util for installment loans influences score only miniminally compared with increased %revolv util. Also, adding a mortgage can additionally have a positive influence on the category of type credit mix. All that being said, regardless of the short term effect on credit score, adding the mortgage will increase overall debt to income ratio and overall debt, which will be taken into account by any CCC in addition to FICO when making a decision on grant of a new card. Also note that Advantage (as opposed to FICO) credit scoring includes a category for overall balances in addition to %util. I doubt that any CCC would grant a new line of 100K revolving credit immediately after an applicant has taken on a new 100K mortgage, regardless of FICO score. In fact, I would be shocked, unless you are in the 250K+ income bracket with no additional debt at all. Substantial new credit at this point would probably have to be secured through Tony Soprano.Your question is an excellent example of how FICO is not the end all for any lender in making new credit decisions. Even "pre-approved" offers for new revolving credit require the additional review of current credit status, and are not granted based only on the FICO score they use to extend the "pre-approved" offer.
Message Edited by RobertEG on 10-16-2007 07:52 PM
Message Edited by RobertEG on 10-16-2007 07:58 PM