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Improving mortgage scores

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Anonymous
Not applicable

Improving mortgage scores

What should I do.

Balances of:
1. School loan 72,000/376,000
2. Car loan 62,000/70,000
3. Car loan 60,000/68,000
4. Home loan 680,000/740,000

What should I pay to improve mortgage scores. Pay off a whole loan, pay off most of a couple loans etc.

Only care about mortgage score not other scores.

Thx
Message 1 of 6
5 REPLIES 5
Thomas_Thumb
Senior Contributor

Re: Improving mortgage scores

Don't pay off any loans. Do pay down loans.

 

Fico looks at aggregate balance to loan ratio for open loans. If you pay off a loan completely, that loan will close and its original amount no longer is included in the denominator. How much do you have available for payments? As an example let's assume you have $100k for payments.

 

Case 1: Pay off the student loan and then put the remainder ($28k) toward the home mortgage

Aggregate B/L (before) = 874/1244 = 70.3%, B/L (after) = 774/868 = 89.2% (not good Smiley Sad - going the wrong direction)

 

Case 2: $92k toward mortgage, $4k toward each car loan, nothing extra toward student loans which has a low B/L ratio.

Aggregate B/L (before) = 70.3%, B/L (after) = 774/1244 = 62.2% (good Smiley Happy - showing progress! aggregate is lower)

Mortgage B/L (before) = 652/740 = 88.1%, Mortgage B/L (after) = 79.7% (also good)

 

Side note 1: # of credit card accounts reporting a positive balance can significantly impact Fico mortgage score. It is best to practice "all zero except one" (AZEO) for revolving credit cards reporting a balance for best mortgage score. The card that does report a balance needs to be a credit card (not an AMEX charge card).

 

Charge cards (1 month terms) do not count as revolving account activity in Fico 04 - this model is used by EQ and TU for their mortgage scores. There is a nominal 15 to 20 point score penalty associated with "no recent revolving activity".

 

Side note 2: DTI ratio is an important factor in a manual review. Therefore, paying off a car loan may be beneficial prior to applying for a new loan - even though pay off won't improve Fico mortgage score.

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
Message 2 of 6
SouthJamaica
Mega Contributor

Re: Improving mortgage scores


@Anonymous wrote:
What should I do.

Balances of:
1. School loan 72,000/376,000
2. Car loan 62,000/70,000
3. Car loan 60,000/68,000
4. Home loan 680,000/740,000

What should I pay to improve mortgage scores. Pay off a whole loan, pay off most of a couple loans etc.

Only care about mortgage score not other scores.

Thx

1. I assume you have revolving accounts, but aren't asking for advice on them.

 

2. You will get very little improvement on your mortgage scores by paying down loans. In my profile paying down installment loans creates slight improvement to my TU FICO 4 but has no effect on EX FICO 2 and EQ FICO 5.

 

3. If you give us a picture of your revolving account profile, we can probably give you a tip or two on improving your mortgage scores with management of those. It's counterintuitive that mortgage scores would pay less attention to actual mortgages and other installment loans than they pay to revolving credit, but they do.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 3 of 6
Anonymous
Not applicable

Re: Improving mortgage scores

Thanks for the advice guys.

My credit cards have all zero balances except 1 has a 1% balance.

Sucks that paying down loans doesn't show that u are a better risk for new loans 😂
Message 4 of 6
SouthJamaica
Mega Contributor

Re: Improving mortgage scores


@Anonymous wrote:
Thanks for the advice guys.

My credit cards have all zero balances except 1 has a 1% balance.

Sucks that paying down loans doesn't show that u are a better risk for new loans 😂

1. OK your credit cards are optimized.

 

2. Since the mortgage scores are more interested in "number of accounts with balances" than they are in your installment loan utilization percentages, my advice would be the opposite of what I would recommend if you were looking to improve your FICO 8 and similar scores. My advice is to pay one of the loans down to zero.

 

3. Yes it does suck that FICO 8 and similar scores don't reward paying loans down to zero, but the mortgage scores behave quite differently.

 

BTW I'm not a mortgage loan officer and have no real understanding how loan officers think, but if I were a loan officer I would not like to see two (2) such heavy open car loans. I would much prefer to see one. And getting rid of one of them will improve your debt-to-income ratio, which is definitely something the loan officers do take very seriously.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 5 of 6
Anonymous
Not applicable

Re: Improving mortgage scores

Hi CreditCardMan.  Do you have any derogs on your reports?  (Lates, Chargeoffs, Collections, Liens, Judgments, Public Records, etc.)  These matter acutely and often can be deleted from your reports.

 

In answering the question about derogs, be sure that you do not use Credit Karma, which can often mistakenly imply that you have no lates when you have a late on your report from (say) three years ago.  The reports from annualCreditReport.com are the gold standard you should be using.

 

When do you guess you will most likely close on a home?  The advice you get will be different if your timeline is 3 weeks, 3 months, or 3 years.

 

Have you pullled your mortgage scores using the myFICO Ultimate tool?  You may not need to do anything depending on what your scores are.  It would be be helpful to hear what your scores are.

Message 6 of 6
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