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FICO Scores as
Guidelines
FICO scores are only
"guidelines" and factors other than FICO scores affect underwriting
decisions. Some examples of compensating factors that will make an
underwriter more lenient toward lower FICO scores can be a larger down
payment, low debt-to-income ratios, an excellent history of saving
money, and others. There also may be a reasonable explanation for
items on the credit history which negatively impact your credit score.
They
Don't Always Make Sense
Even so, sometimes
credit scores do not seem to make any sense at all. One borrower with
a completely flawless credit history had a FICO score below 600. One
borrower with a foreclosure on her credit report had a FICO above 780.
Portfolio &
Sub-Prime Lenders
Finally, there are a
few "portfolio" lenders who do not even look at credit scoring, at
least on their portfolio loans. A portfolio lender is usually a
savings & loan institution who originates some adjustable rate
mortgages that they intend to keep in their own portfolio instead of
selling them in the secondary mortgage market. They may look at home
loans differently. Some concentrate on the value of the home. Some may
concentrate more on the savings history of the borrower. There are
also "sub-prime" lenders, or "B & C paper" lenders, who will provide a
home loan, but at a higher interest rate and cost.
Running Credit
Reports
One thing to remember
when you are shopping for a home loan is that you should not let
numerous mortgage lenders run credit reports on you. Wait until you
have a reasonable expectation that they are the lender you are going
to use to obtain your home loan. Not only will you have to explain any
credit inquiries in the last ninety days, but numerous inquiries will
lower your FICO score by a small amount. This may not matter if your
FICO is 780, but it would matter to you if it is 642.
Don't Buy A Car Just
Before Looking for a Home!
In conclusion, a word
of advice not directly related to FICO scores. When people begin to
think about the possibility of buying a home, they often think about
buying other big ticket items, such as cars. Quite often when someone
asks a lender to prequalify them for a home loan there is a brand new
car payment on the credit report. Often, they would have qualified in
their anticipated price range except that the new car payment has
raised their debt-to-income ratio, lowering their maximum purchase
price. Sometimes they have bought the car so recently that the new
loan doesn’t even show up on the credit report yet, but with six to
eight credit inquiries from car dealers and automobile finance
companies it is kind of obvious. Almost every time you sit down in a
car dealership, it generates two inquiries into your credit.
Credit History is
Important
Nowadays, credit scores
are important if you want to get the best interest rate available.
Protect your FICO score. Do not open new revolving accounts
needlessly. Do not fill out credit applications needlessly. Do not
keep your credit cards nearly maxed out. Make sure you do use your
credit occasionally. Always make sure every creditor has their
payment in their office no later than 29 days past due.
And never ever
be more than thirty days late on your mortgage.
Ever.
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