BUYING OR REFINANCING? You Need A Higher Credit Score than you Used To!
MINIMUM 680 FICO CREDIT SCORE NOW NEEDED TO GET THE BEST LOAN TERMS!
Just like some say, "Age 50 is the new 40, 40 the new 30," and so on, 680, not 620, is the new FICO Score threshold lenders consider for the best mortgage interest rates.
Many lenders predicted that more subjective measures of credit evaluation would come into play as loan underwriting standards got tougher within the last year. Now, however, that magic three-digit FICO number is still most important to many lenders.
Today, here in Chicago, and across the country, those with credit scores of less than 680 will have to pay higher interest rates, additional fees, or have a larger down payment or equity position in their home.
Since having a high credit score is a true necessity of finding affordable mortgage funding, it is key to check your credit scores regularly through the three major credit bureaus - Equifax, Experian, and TransUnion.
Lenders feel that credit worthy behavior is the best predictor of whether or not a borrower will pay his mortgage payments on time. From the opposite angle, those who consistently late are not likely to all-of-a-sudden change their payment behavior, accoring to the lending community.
Although there are many factors involved in computing an individual's credit score, there are a few basic predictors of good credit.
First is the LENGTH of the borrower's credit history. A home borrower with a 10 year good credit history is generally looked upon more favorably than someone with a very short history. Often, those with at least a three-year favorable payment history will pass most mortgage muster. Even those with a shorter history will show strong scores, if there is a consistent record of paying bills on time.
Another predictive factor lenders review is total indebtedness versus total available credit. Experts suggest keeping your credit balance no more than one-half of your total credit limit will raise your scores. Sometimes, it is more helpful to PAY DOWN high individual account balances, rather than paying them off completely.
Late payments can lower your score almost immediately - especially recent ones. Late pays from over two years ago have much less of an effect.
Credit card holders may not raise their FICO Scores simply by paying off their balances in full each month, if they have a high credit balance during the month. Credit scores are a snapshot of your indebtedness at a specific time - if, when the credit report is pulled, you have a momentarily-high balance on one of your credit cards, your score might decrease.
FICO Scoring is also affected by the NUMBER of credit lines you have. Having too many lines can impact your credit negatively, as will having too few. Those who pay cash for many repetitive monthly items - utility bills, rent, and the like - should keep accurate records of their payments. Mortgage lenders will take these records into consideration when these borrowers apply for a mortgage loan.
For more information, read Lew Sichelman's article in yesterday's Chicago Tribune.
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