Mortgage Fico (2/4/5) Sudden Drop / Optimization Help

[chrisco245]

We've been trying to buy our first home for the past 8 months, but supply has been extremely limited in our area and we lost our only offers to cash buyers. I have two mortage applications in pre-underwritten status (to help compete with cash buyers), but maintaining that status requires hard inquiry refreshes every 4 months. At the end of November my Fico 5 and 4 scores each dropped a whopping 40 points while my Fico 2 dropped only 4 points; this moved us to a lower middle-score bracket and further reduced our buying power. Even after spending hours reading up on this forum and elsewhere, I can't figure out why this happened, or if there is anything I can do to change this, or avoid another drop when I have to refresh scores again in about a month. Dropping below 720 middle score will crush our home buying efforts. Looking for some help here.

End of October my scores were 767, 746, 750 (Ficos 5, 4, 2, respectively).

End of November my scores were 727, 707, 746.

Here's everything that changed in between, other than making usual payments on time:

* Both (two) mortgage applications refreshed scores across all bureaus, adding two hard inquiries to each bureau.

* Two credit cards reported credit limit increases, neither of which was associated with a hard inquiry (only an income increase).

* Facing the end of low-APR periods on some cards, we did several balance transfer shuffles to avoid an interest spike (that would have also impacted our DTI with much higher min payments reported). This seems the obvious suspect in changing my scores, but my credit utilizations (individual and total) didn't actually change much.  2 of 7 credit cards carry my balances (at 0% interest). The same two accounts before and after the shuffle. The same two accounts that also saw credit limit increases. Before the increases and shuffle those utilizations were 52% on both. After the increases and shuffle the utilizations went to 58% and 68%, and my total revolving utilization went from 17% to 21%.

I'm really confused by the 40 point drop because:

* I don't see any utilization thresholds around these values: no thresholds between 48.9% and 68.9%, which I didn't cross. This month I've alredy paid the 68% down to 61%, bringing total utilization to 18%, but haven't seen what effect this will have yet, if any. Getting the 61% down to 58.9% would be painful on cash right now, and doesn't appear that would make any difference whatsoever to my scores since there is no threshold there.

* I read that Fico 2, 4, 5 are less sensitive to credit utilization AND more sensitive to inquiries. My Fico 8s were only minimally impacted by the shuffle, and already bouncing. Nothing like the 40 point plummets on my mortgage scores, which actually matter.

With what should be minor increases in utilizations that didn't cross any thresholds, I'm concerned the "six new inquiries" (two mortage applications per three bureaus) is the main culprit in driving the 40 point plummet. If so, there is nothing I can do but wait 12 months? And what happens when the scores are refreshed again to maintain pre-underwritten status or if we have an offer accepted and they run a hard inquiry during closing? Another 40 point plummet will destroy us.  Can anyone offer any insights into the 40 point drops? Does the fact that Fico 2 only dropped 4 points offer any clues? (Already verified: each bureau has the same account and inquiry information.)

I have to just add that with Fico 8s hovering in the 785 range we are told "you have excellent credit!". But if we can't afford to buy a home because our mortgage scores slide below 720, possibly for no reason other than inquiries to maintain mortgage applications, well then I'm devasted. Years of hard work to maintain zero late payments across 100% of accounts is all garbage. <20% utilization: meaningless. 

[SouthJamaica]

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@chrisco245 wrote:

We've been trying to buy our first home for the past 8 months, but supply has been extremely limited in our area and we lost our only offers to cash buyers. I have two mortage applications in pre-underwritten status (to help compete with cash buyers), but maintaining that status requires hard inquiry refreshes every 4 months. At the end of November my Fico 5 and 4 scores each dropped a whopping 40 points while my Fico 2 dropped only 4 points; this moved us to a lower middle-score bracket and further reduced our buying power. Even after spending hours reading up on this forum and elsewhere, I can't figure out why this happened, or if there is anything I can do to change this, or avoid another drop when I have to refresh scores again in about a month. Dropping below 720 middle score will crush our home buying efforts. Looking for some help here.

End of October my scores were 767, 746, 750 (Ficos 5, 4, 2, respectively).

End of November my scores were 727, 707, 746.

Here's everything that changed in between, other than making usual payments on time:

* Both (two) mortgage applications refreshed scores across all bureaus, adding two hard inquiries to each bureau.

* Two credit cards reported credit limit increases, neither of which was associated with a hard inquiry (only an income increase).

* Facing the end of low-APR periods on some cards, we did several balance transfer shuffles to avoid an interest spike (that would have also impacted our DTI with much higher min payments reported). This seems the obvious suspect in changing my scores, but my credit utilizations (individual and total) didn't actually change much.  2 of 7 credit cards carry my balances (at 0% interest). The same two accounts before and after the shuffle. The same two accounts that also saw credit limit increases. Before the increases and shuffle those utilizations were 52% on both. After the increases and shuffle the utilizations went to 58% and 68%, and my total revolving utilization went from 17% to 21%.

I'm really confused by the 40 point drop because:

* I don't see any utilization thresholds around these values: no thresholds between 48.9% and 68.9%, which I didn't cross. This month I've alredy paid the 68% down to 61%, bringing total utilization to 18%, but haven't seen what effect this will have yet, if any. Getting the 61% down to 58.9% would be painful on cash right now, and doesn't appear that would make any difference whatsoever to my scores since there is no threshold there.

* I read that Fico 2, 4, 5 are less sensitive to credit utilization AND more sensitive to inquiries. My Fico 8s were only minimally impacted by the shuffle, and already bouncing. Nothing like the 40 point plummets on my mortgage scores, which actually matter.

With what should be minor increases in utilizations that didn't cross any thresholds, I'm concerned the "six new inquiries" (two mortage applications per three bureaus) is the main culprit in driving the 40 point plummet. If so, there is nothing I can do but wait 12 months? And what happens when the scores are refreshed again to maintain pre-underwritten status or if we have an offer accepted and they run a hard inquiry during closing? Another 40 point plummet will destroy us.  Can anyone offer any insights into the 40 point drops? Does the fact that Fico 2 only dropped 4 points offer any clues? (Already verified: each bureau has the same account and inquiry information.)

I have to just add that with Fico 8s hovering in the 785 range we are told "you have excellent credit!". But if we can't afford to buy a home because our mortgage scores slide below 720, possibly for no reason other than inquiries to maintain mortgage applications, well then I'm devasted. Years of hard work to maintain zero late payments across 100% of accounts is all garbage. <20% utilization: meaningless. 

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1. The inquiries would not cause a 40-point loss.

2. With shifting balances around, there can be unanticipated consequences due to delays in reporting the balances. You need to wait a couple of months until the dust settles before you can tell what your actual scores are.

3. The mortgage scores are strongly affected by the number of zero balances; so the more accounts you can have report at zero the better.

4. The individual account utilization thresholds are not as well known as some people like to think. The key thresholds are 28% and 48%.

5. 58% and 68% are not good.

6. IMHO you are ill advised to be doing the things you are doing in the 12-month run up to a mortgage application.  E.g., (A) any applications for anything that provoke a hard pull are ill advised, and (B) trying to save interest by using promo balance transfer offers is pennywise and pound foolish, because the interest you will save by having a higher tier mortgage will eclipse the interest you save with the balance transfer gambit.

[chrisco245]

Thanks so much for the reply, reall appreciated!

Re #2: because I pay for the myFico service I can see all this detail every month. All balances were already reflecting correctly right after the shuffle, which was all completed within the same billing cycle. Statements have cycled twice since the shuffle, and still no score changes. 

Re #5: agree that 58% and 68% are not good, but these ratios are not much different from before the shuffle (52%) so this doesn't seem to explain the 40 point drops, does it?

Re #6A: I haven't done anything to provoke any hard pulls except the mortgage applications themselves. Credit scores on mortgage applications must be refreshed every 120 days to maintain pre-approval status, which in a normal housing market wouldn't be a problem because most people would probably find and close on a house in that time. But we are not in a normal housing market. I welcome advice on how to skip refreshing scores, but failing to maintain pre-approval status is not an option becasue that would prevent us from being ready to make an offer on the next suitable home that appears on the market (which are few and far between!).

Re #6B: On this point I disagree, and I think it's important for anyone in a similar situation to understand this math. Using an example: carrying $35k of debt at a typical credit card rate of 18% will cost $525/mo in interest, and require a min payment of $875/mo (interest + 1% of balance is how most CCs calculate min payment). At 0%, no interest is charged, every dollar paid reduces the principal, and the min payment is $350/mo. The $525/mo difference cuts three times! First, it drastically slows down the rate of paying off the debt for the same payment amount. Second, the higher reported min payment feeds directly into the Debt-to-Income (DTI) calculation, reducing the mortgage qualification. And third, a higher DTI ratio may also increase PMI which substantially increases the monthly mortgage payment when putting less than 20% down. (PMI is also affected by credit score.)

From what I see today, a 720 vs 740 vs 760 all result in a 7.0% mortgage rate with different points paid. A 720 score would require an additional $1,650 in points compared to a 740, and $2,500 more compared to a 760. Holding points near zero, a 720 score will notch the rate up 0.125% compared to a 760 score, which amounts to $56/mo more on a $665k 30-yr mortgage. I'd much rather pay this than $525/mo more interest expense on a credit card.

What I'd still like to know is why did two of my mortgage scores plummet 40 points? Was it the hard inquiries to refresh the mortgage applications? Or the credit card shuffle that had a fairly minor impact on my utilization ratios? And why was my Fico 2 mostly unaffected even though Experian has identicial information? What is it that Fico 5 and 4 so heavily weight to drive a 40 point change that Fico 2 did not?

[Thomas_Thumb]

@chrisco245 

Don't forget that Fico also has a scoring metric for AMOUNT owed. It is not as impactful as utilization. Nonetheless, increasing amount owed can drop score even if increasing CLs held utilization constant.

As SJ mentioned, balance transfers can and often do result in a temporary score drop. The amount transferred may get double counted during a transition period. The CRAs can have different lag times for data updating. Furthermore, EX score 2 is based on the Fico 98 model while EQ score 5 and TU score 4 are based on the Fico 04 model. EX is less sensitive to qty of cards reporting than EQ or TU. From my experience EX score is more sensitive to changes in utilization.

Inquiries associated with a mortgage are deduped to count as 1 if they all occur during a 14 day time frame with the Fico 98 model. The dedupe is 45 days for Fico 8 and later models. Can't recall if the dedupe for Fico 04 is 14 or 45 days. The inquiries, if deduped, should not be impacting score more than 10-12 points total.

Stop checking score via 3rd party inquiries and pay down debt. As a start get the 2 card UTs below 49% and aggregate under 19%. No more BTs if you want a mortgage. Once debt is reduced pull a 3B report.

Side note: There is no requirement that interval classifications for aggregate utilization match those used for individual cards.  Some poster data indicates more granularity for aggregate utilization.

P.S. Can BTs trigger a HP?

A bigger score boost will come once both cards are below 29% and aggregate is below 9% - avoid more cards reporting balances. The reduction in amount owed may provide an added boost.

[Realist]

I'm going to leave the financial and credit related portions of this inquiry to the other expert contributors, but I'd like to weigh in on a different aspect of your position if I may.

I notice that one of your challenges is competition among buyers.  I've been part of this experience in the past with "bring our best offer" conditions imposed on buyers.  This just means there's competition, and the best offer among a pool of many will likely win out - unless you can differentiate yourself among everyone else.  How might you do this?   The answer is through terms.

In our scenario, everyone was going to offer full price.  Some may have offered a bit more, but there were enough interested parties to suggest this as a possibility.  So what we did, is we did offer full price, as this was acceptable, but we also allowed them 45-60 days rent free to get their affairs in order, and to move out their household items without a rush.  Additionally, we wrote the homeowners a letter stating our desires and how this home would be perfect for our family, and what we enjoyed about this location.  We then included a picture of our family.   When we closed on the deal, we learned from our neighbors, now great friends, that the wife rushed over shortly after to share this letter with them.  She was so happy that she thought we would be a great fit for thier family.  

You never know.  Financials are one aspect of a transaction.  Terms can help to take it over the top and seal the deal.

Since purchasing our home, it has created immense opportunity by simply making numbers dance over a timeframe in which housing prices only kept going up, and interest rates that only kept falling.  Not like today, where they're only going up or maintaining.  There's a time and place for everything.  An opportunity to do things when you couldn't do them otherwise.  Take advantage of every opportunity afforded to you. 

At the end of the day, it wasn't the competition in final price that mattered to the homeowner, it was the terms that offered them relief in the move, as well as the personalized letter that set us apart.  After purchase, the homeowner gave us a personal tour that lasted three hours, to walk us around the property and explain everything he could about it.

You can't purchase that kind of kindness.  You have to stand out as something different from everyone else.

[chrisco245]

Thank you, Thomas. 

Months later, I'm still stumped, especially by my Eq Fico 5 score. I've pulled a 3B report from MyFico each month for the last 10 months. My Ficos 5 and 4 dropped dramatically (-40 pts) between 10/28/24 and 11/30/24, and I've been trying to figure out why and what to do to get at least the Fico 5 back above 740.  I do want to clarify one point: the BT did Not involve applying for or opening any new accounts, this was done from an existing card to an existing card. No inquiries. No new accounts. Balances transfered in October.

Here's a snapshot of my data, hoping this will shed some light, and/or be helpful to someone using this kind of data to understand the scoring models better.

Payment history: flawless, no late payments ever.

Average age of accounts: 10 yrs 5 mo

Credit mix: 7 revolving, 22 installment (13 open, of which 11 are student loans)

No collections or public records ever.

Date 3B pulled:                              7/5/2024              10/28/2024              11/30/2024              3/17/2025

Fico 8                                             802 | 775 | 795       809 | 781 | 788         795 | 768 | 781         807 | 779 | 788

Fico 5/4/2 (middle):                774 | 746 | 761        767 | 746 | 750        727 | 707 | 746        734 | 723 | 746

Inquiries:                                                     1                                  1                                    2                                    2

Count of revlv w/ balances:              2                                 3                                    4                                    2

Total revlv balance:                       $30,972                  $29,649                       $37,155                      $32,793

Total utilization:                                  18.6%                         17.8%                           20.2%                          18.0%

Highest single utilization:              66.6%                        63.8%                           68.8%                          58.9%

Age of newest account:                  2 mo                          5 mo                             6 mo                           10 mo

Inquiries: there were actually 3 mortgage lenders x 3 bureaus = 9 inquiries in June 2024, all done within a 10 day span. It appears from myFico dashboard these were deduped and counted as 1 inquiry. Scores remain valid in mortgage applications for 120 days, so I had to let two lenders refresh scores in October to maintain pre-approval. These Oct HPs also appear to be grouped together, bumping the inquiry count from 1 to 2.

Credit Limits: CLs on three credit cards went up between the Oct and Nov 3Bs. One was automatic, happened without my knowledge. Two were at my request, but did not involve HPs, only an income update (Citi cards). I was under the impression the increase in CLs would lower utilization, and in the absence of HPs should only have a favorable effect on scores. But maybe this isn't the case in the Fico 04 model?

Comparing the July 5 to March 17 scores and 3Bs, all factors are nearly identical. Total revolving balance is a little higher in March, but total utilization, individual utilization, and count of accounts with balances are all lower in March. Newest account has aged from 2 mo to 10 mo. Despite these improvements, my Fico 5 score still remains a whopping 40 points lower in March than it was last July.  Why?

Specific questions:

• The newest account is an installment loan opened in April 2024. It promptly reported to all three bureaus and is listed on the July 5 report. Is there something like a 6 month window in which a new loan has no impact on the scoring model, and then 6 months later bam! the scoring model catches up?  Could a loan opened in April suddenly negatively impact scores 6 months later? (no late payments - that's not an issue here.)
• Could the CL increases on the credit cards in November have had a negative impact, even though there were no HPs?
• Is there a significant lag time between when the credit reports are updated and when the scoring models run and update the scores? Or do the scores update automatically as soon as new information is posted to the reports?
• Why are my March scores still so much lower than my scores last July when all factors are about the same or better?

I get the general advice: pay down debt, lower utilization ratios, and don't do any more BTs. What I'm asking is: why are my March scores so much lower than my July scores? What am I not understanding about the Fico 04 scoring model that is keeping my scores low at this point?

Thanks in advance for any additional thoughts or insights. Trying really hard to get my middle Fico > 740 before locking in a 30-year mortgage.

[Thomas_Thumb]

There can be a 30 day lag for certain inquiries affecting score. It is called the "30 day buffer".

Fico scores only change when pulled. Some monitoring services pull Fico 8 scores daily or based on a trigger event. Some services only pull mortgage scores quarterly or upon request.

My experience was presence of a recent inquiry made my EQ score 5 and TU score 4 more sensitive to #/% of cards reporting balances. Again, EX score 2 is rather insensitive. In other words score would drop more when # cards increased if the CRA file included a recent inquiry. Thus, minimizing qty reporting was more critical.

Fico mortgage scores penalize you for having a new account under 12 months age this includes an installment account. The Fico 8 penaly appears to be selectively targeted toward the new account(s) being revolving account.

Fico models do not penalize for number of accounts carrying a balance per se. They penalize for number of accounts and percent of cards REPORTING a balance. So, pay as many cards to zero as possible before cut dates so a $0 is reported.

Get and maintain highest reported utilization on all cards under 49%.

Fico does look at aggregate B/L ratio on installment loans. Not sure where you stand on this. Length of loan payment history is a factor as well. Have you paid off, closed any loans?

Side note: all authorized user accounts count for/against you with Fico mortgage algorithms. So, if you have any such cards, have them report $0 balance.

Lastly, Fico does look at amount owed as well as utilization. No one knows the thresholds for amount owed.