10. The Fair Isaac Model 7.625% = $1906mo. 6.750% = $1687mo. 680 679 Credit Score $300,000 loan
11. The Fair Isaac Model 1 pt. $218 / month $2,625 / year $13,125 / 5 years 680 679 Credit Score
12. Defining the Score 850 -Highest Outstanding - 720 Good - 680 Danger - 620 500 -Needs work
13. Three Credit Reporting Agencies Get a copy from all three agencies www. annual credit report .com Lenders use a median score from these three agencies
14. 5 Credit Score Categories Inquiries Mix of Credit Average Age of File Revolving Debt Ratio Payment History
16. Payment History Thirty (30) day late payments Level – 30,60,90,120 days late Charge-offs, repossessions,& foreclosures
17. Collections and Charge-offs Have lender pull report, use simulator, let’s pretend Not buying a home…no need to micromanage credit Buying a home…call lender, prepare strategy, negotiate! Write your own letter! Other option...pay off debt…last activity date brought current
18. Past Due Balances Late payment vs. past due balance Minimum–always pay past due balance “ Past due” is predictive by scoring model
19. Missed Payments Low payment vs. high payment Low payment vs. 90 days late Predictive factors by scoring model
20. Delinquencies Chapter 7 & 11 Chapter 13 Tax Liens* Late payments Charge-offs Judgments Inquiries Years from filing date Years from filing date Years from date satisfied Years from payment date Years from 1 st late payment Years from filing date Years from inquiries 10 7 7.5 2 7 7 7 Carrie DeSalvo – Your Certified Mortgage Planning Specialist Delinquencies on Credit Reports
34. Increase Credit Scores Use credit cards once every 6 months–pay off Open secured credit card Keep credit separate from spouse 640 690 740 800 Credit Scores
35. Other Reporting Agencies www.innovis.com www.choicetrust.com Medical information bureau Specialty report agencies; gambling, checking accounts, medical claims & insurance
Who or what is fair Isaac. An evolving financial model…….because it evolves…certain smaller local mortgage brokers may not and probably do not have update to the most current version. Let me share with you how this can make a difference between using a broker like CTX vs. others. The tale of two credit scores: Suzy shopper applied fro credit with two different m-brokers, but came back with 2 different scores…..which got her 2 different rates….two different monthly payments……..next slide Small brokers often do not update…..old models can cost you a score that changes your rate, and cost you thousands of dollars.
Notice the difference is only 2pts!....this can be the difference between a current Fair Isaac Model….and one that is slightly out of date…..the results to Suzy shoppers pocket book……218 / month, 2625 for an entire year…and over 5 years….$13,125….the bigger picture? That $218 per month differential put your potential home buyer in a class of loan/home that they were uncomfortable with…..
850 = Highest – can do anything! 720 = Outstanding (Best score for stated income, no ratio and no doc loans) 680 = Good (Best for Conventional) 620 = Danger (Okay for FHA and Conv) 500 = Needs work - subprime
35% of credit score is made up of payment history. 30 day late last month significantly worse than a 30 day late 3 years ago. Level is important, 30,60,90,120, chargeoff, bk (in between are repos and foreclosures which are a little worse than a charge-off, not as bad as bk for credit scoring purposes.
Fair Isaac claims that newest scoring model has corrected many errors with their newest scoring model classic FICO. Of particular importance is paying off a collection or charge-off. When you pay it off, the last activity date is brought current. If you are not in the process of buying a home, this is no big deal. If you are in the process of buying a hoe, the safest thing to do is have the lender and their underwriting department condition for the collection to be paid at the time of closing if it is a condition of the approval. Many of our automated underwriting programs do not require collections to be paid off which is another reason to wait until paying these debts. If you are not in the process of buying a home, for purposes of cleaning up your credit report, call the creditor and try to negotiate with them. Tell them that you will pay off the collection in full in return for their removing all references to this debt from the bureaus. This will avoid having a “paid collection” on your credit report and the date of last activity being updated.
Destroy a credit score. We used to tell people if you are going to be late on your mortgage, do not be 30 days late. This may NOT be the best advice. If payment is due on the 1 st and a late charge is assessed on the 15 th , the creditor may report a past due amount to the credit bureaus because technically you are past due. There may not be a late payment, but there is a past due balance. If you see a debt on your credit report with a past due balance, collection or otherwise, it is critical to at least pay the past due balance. The credit scoring model looks at a past due account as being predictive as to whether or not you are going off the deep end and they can decrease your score by as much as 10 to 20 points.
Missing a low payment is less damaging than missing a high payment. The credit score model looks at low payments being missed as negative, less negative than high payments. Statistically if someone misses a high payment it is because they can’t afford to make the payment. If you miss a low payment, a $20.00 payment, typically it is a situation where the check was lost in the mail, the bill was never received, et cetera. Someone who misses a $20.00 payment on a credit card did not fall into the category of those who paid 90 days late and were at risk of default. From this we can see that there is a predictive factor involved in the amount of the payment that the person goes 30 days late on.
Your debt ratio which is the amount you owe divided by the high credit available has a huge impact on your credit score. If you are maxed out this has a significant impact on your score. This is probably the most important scoring factor because it is one where an action plan can make a huge difference in your score. In a time where most loan products are credit score driven this is a critical factor. I have experienced personally the difference that one point can make on your credit score. I recently closed on the purchase of a piece of land. In March my middle score was 759. When my credit was pulled again for the land by B of A (I had to use them for the land loan where I was buying) my score was 719. Not a big deal, except that the loan program required a 720. I had to put an additional 5% down on the property. So, where does the action plan come in? If you know you are going to be buying a home there are several things you can do. One, keep your balances as close to 0 as possible. If you cannot pay off your credit cards, distribute the balances evenly over several cards. It is best to optimal to keep your cards paid off, next comes under 20%, after that 50%, otherwise at least under 70% of the high balance. Another way to lower the ratio is to call the creditor and ask them to increase your credit limit. These are all strategies to consider if you are in the process of buying a home. You may use one credit card for everything and pay it off each month. I do that. Recently my husband got involved with paying our bills after many years of my having that responsibility. He handed back to me after he saw what the Visa bill was every month. He couldn’t handle it. I charge everything to take advantage of my air miles which many of us do. I pay off the balance every month so I figured that was okay. I noticed however on both of the credit reports I pulled that the balance was always there in the full amount. That is because the full balance is there when the bill generates. If you are in the habit of paying off your bills every month and are in the process of buying a home, you may want to consider calling the creditor about 10 days before your new statement generates, or get online, find out the balance, estimate how much more you think you will put on the credit and send in a payment at least a week in advance. In this way, when the new bill generates you’ll show a 0 balance. Of course, if you’re not in the process of making a major purchase where your score matters, there wouldn’t be a need to micromanage your credit to this extent. It is also very common to see on credit reports that the credit limit is not being reported. This is critical because the scoring model will read it that your credit card is maxed out.
Your debt ratio which is the amount you owe divided by the high credit available has a huge impact on your credit score. If you are maxed out this has a significant impact on your score. This is probably the most important scoring factor because it is one where an action plan can make a huge difference in your score. In a time where most loan products are credit score driven this is a critical factor. I have experienced personally the difference that one point can make on your credit score. I recently closed on the purchase of a piece of land. In March my middle score was 759. When my credit was pulled again for the land by B of A (I had to use them for the land loan where I was buying) my score was 719. Not a big deal, except that the loan program required a 720. I had to put an additional 5% down on the property. So, where does the action plan come in? If you know you are going to be buying a home there are several things you can do. One, keep your balances as close to 0 as possible. If you cannot pay off your credit cards, distribute the balances evenly over several cards. It is best to optimal to keep your cards paid off, next comes under 20%, after that 50%, otherwise at least under 70% of the high balance. Another way to lower the ratio is to call the creditor and ask them to increase your credit limit. These are all strategies to consider if you are in the process of buying a home. You may use one credit card for everything and pay it off each month. I do that. Recently my husband got involved with paying our bills after many years of my having that responsibility. He handed back to me after he saw what the Visa bill was every month. He couldn’t handle it. I charge everything to take advantage of my air miles which many of us do. I pay off the balance every month so I figured that was okay. I noticed however on both of the credit reports I pulled that the balance was always there in the full amount. That is because the full balance is there when the bill generates. If you are in the habit of paying off your bills every month and are in the process of buying a home, you may want to consider calling the creditor about 10 days before your new statement generates, or get online, find out the balance, estimate how much more you think you will put on the credit and send in a payment at least a week in advance. In this way, when the new bill generates you’ll show a 0 balance. Of course, if you’re not in the process of making a major purchase where your score matters, there wouldn’t be a need to micromanage your credit to this extent. It is also very common to see on credit reports that the credit limit is not being reported. This is critical because the scoring model will read it that your credit card is maxed out…..this seems like AN INCOMPLETE THOUGHT….
In my 12 years in the mortgage industry, I estimate that I have reviewed over 2000 credit reports. Only a handful of tiems that I seen clients with all three scores over 800. While scores in the 700’s are excellent, and we’re thrilled when we see them, there is good reason to strive for the 800 score. Today, it not only affects our buying a home, it affects our getting the best deals on car purchases and now laws are being passed that allow insurance agencies to determine your rate based on your credit score. A common denominator (would like this rephrased) of clients with all three scores in the 800’s is having a credit card that is over 20 years old. The older the history, the more well used, the better the score. If you close a 10 year old credit card, it is not going to have its 11 th birthday next year. Holding on to an old credit card can help not only in the debt ratio area, it can help in the aged area of your credit score. If you close an old credit card that you are not using, you get rid of available credit and increase the debt ratio for the debt you are currently carrying. More importantly though you are hurting yourself because the older the credit accounts are on average on the credit report the better. One strategy that has been used to establish a credit history is to piggyback off mom and dad’s credit. There has been much in the news about companies that pay people who let you piggyback off of their credit in order to increase your credit score. This is illegal and something that Fair Isaac is addressing immediately in their scoring model. If you’re doing this just for purposes of creating a credit score, it is not going to be looked upon favorably by an underwriter. On the other hand, if you have an 18 year old that you are trying to help establish credit, putting them legitimately on your credit to help them get started as an authorized user is fine.
In my 12 years in the mortgage industry, I estimate that I have reviewed over 2000 credit reports. Only a handful of tiems that I seen clients with all three scores over 800. While scores in the 700’s are excellent, and we’re thrilled when we see them, there is good reason to strive for the 800 score. Today, it not only affects our buying a home, it affects our getting the best deals on car purchases and now laws are being passed that allow insurance agencies to determine your rate based on your credit score. A common denominator (would like this rephrased) of clients with all three scores in the 800’s is having a credit card that is over 20 years old. The older the history, the more well used, the better the score. If you close a 10 year old credit card, it is not going to have its 11 th birthday next year. Holding on to an old credit card can help not only in the debt ratio area, it can help in the aged area of your credit score. If you close an old credit card that you are not using, you get rid of available credit and increase the debt ratio for the debt you are currently carrying. More importantly though you are hurting yourself because the older the credit accounts are on average on the credit report the better. One strategy that has been used to establish a credit history is to piggyback off mom and dad’s credit. There has been much in the news about companies that pay people who let you piggyback off of their credit in order to increase your credit score. This is illegal and something that Fair Isaac is addressing immediately in their scoring model. If you’re doing this just for purposes of creating a credit score, it is not going to be looked upon favorably by an underwriter. On the other hand, if you have an 18 year old that you are trying to help establish credit, putting them legitimately on your credit to help them get started as an authorized user is fine.
3 to 5 revolving credit cards, an auto loan and a mortgage are optimal. Someone who pays off their mortgage might be disappointed to see their score go down slightly. This would just be because the scoring model looks at an established mortgage history favorably. If you have 10 credit cards, don’t go out and close 5 of them right now. This could actually hurt you more than it helps you. It would only make a minimal difference in your score and not worth it. So, let’s say someone has 5 credit cards, a mortgage account and auto account they are maximizing the positive impact they can get out of this are of the credit score which is only 10% of what makes up the credit score.
. Be careful with equity lines of credit. These can be viewed as giant credit cards. When a customer opens an equity line, better to go for a higher amount than a lower amount. If the amount is higher it typically is scored as a mortgage and not a credit card. This was actually what happened in my personal situation. I had a 25K equity line and I had used money from the equity line for a down payment on a property and it lowered my score almost 40 points because it looked like a maxed out credit card. (How about a house, a car and credit cards in the bowl or in a blender ?) Just a crazy thought!
We all worry about inquiries, but they are a necessary evil. While we don’t want to have our credit pulled for a free pen at Sears, they are necessary especially when it comes to buying a home or a car. Inquiries make up 10% of the credit score. They can cost between 2 and 50 points depending on how thick the credit file is and what other factors are being looked at and what score cards are coming into play. On the average an inquiry will cost you about 5 points. Auto and mortgage inquiries are treated differently than credit card inquiries. If they happen within a 45 day period they are treated as one for scoring purposes. If you have one auto inquiry and one mortgage inquiry tomorrow they will be treated as 2 inquiries. If however you have 10 mortgage inquiries in the next week, it will be counted as one for scoring purposes. The same goes for auto inquiries. Some of the older scoring models consider mortgage and auto inquiries within a 14 day period as one inquiry. To play it safe, it would be best to assume that these pulls need to be within the 14 day period, rather than take a chance that the lender is using an older scoring model. Hopefully someday this will all be consistent. There are some inquiries that do not count at all, these would be the ones that are pulled for insurance or employment purposes. Credit card companies sometimes do account review inquiries to make sure you are not going off the deep end. If a customer wants to know what their fico is without it impacting their score they can find out at myfico.com. While the FACT Act Fair Credit and Reporting Act that went into effect entitles you by law to a free credit report each year, they are not required to give you your fico so you do have to pay for the fico score on my fico.com. The other option of course is to have your lender pull your tri-merged credit report for you, you’ll then have your credit report and your fico scores.
Use Credit Cards at least once every six months and pay off balance. Otherwise they go inactive and any positive aspects will be ignored. Get added as an authorized user by a family member. This is the only legal way to do this currently and is a great way to help a child that has turned 18 to start establishing their own credit. Not legal to pay someone to put you on their credit card and this practice is being scrutinized by the industry very closely right now. Keep credit separate from your spouse. This keeps individual credit ratios lower and also is advantageous if one spouse dies so that the other has their own established credit.
4 th Largest Credit Bureau is Innovis . www.innovis.com – free report yearly Clue Report – www.choicetrust.com – information used for underwriting auto and home insurance Medical Information Bureau – information used for underwriting life insurance Specialty report agencies; gambling, checking accounts, medical claims and insurance. These can be used in addition to a traditional credit report when you are renting an apartment, being considered for a promotion, securing medical or auto insurance.
Do you have high blood pressure? When its time for your check –up do you start eating right?
When its time for your dental appointment …do you brush your teeth really good, like this boy is doing?
2002 study of more than 500,000 randomly-selected credit report files by Consumer Federation of America and NCRA found that: 78% of all files were missing at lest one revolving credit account in good standing.
One third omitted a mortgage account that had never been late. (I’ve seen this many times)
43% contained conflicting information on whether a credit account had or had not, been paid on time.
Overall, one in four consumers – 22 percent or 40 million Americans are at risk of misclassification into the sub-prime higher priced lending market because of bad data and omissions on reports Mention this statement if you want-but it does not fit graphically with the other four (Four is enough ) Credit scores on same report varied significantly from bureau to bureau attributable to conflicting date ni the files.
