Not just a Mortgage Issue
Most people know that your Credit Score (FICO) has a significant effect on whether you can get a Mortgage.
What is not generally known is that FICO is increasingly being used by Employers, Insurance Companies,
Utility Companies, Apartment Complexes and a growing list of other organization which provide services for regular payments.
These and many other groups consider it a good indicator of general reliability and whether bills will be paid on time.
Potential home buyers, or anyone thinking of refinancing are finding that their credit scores are vastly more important now than in the boom years. However, they seldom know the effect of even one “minor” bad credit event.
For example:
Tom has a barely o.k. 68O FICO score but makes a 30 day late mortgage payment. It will take 9 months for his score to get back to that level assuming no more late payments.
Dick has an good 720 Fico and makes a 30 day late payment. It will take 2 ½ years to get back.
Harry has a very good 780 FICO but after a 30 day late pay it will take 3 years for him to get back to that level.
The financial costs of lower credit range from being unable to get any loan, to paying a higher interest rate and higher fees for anything below 720, finding it virtually impossible to get any loan below 640.
The moral is of course to pay your bills on time at all times.
NOTE: Getting and maintaining good credit is a greatly misunderstood process with mountains of free but inaccurate advice. I can strongly recommend Ken Strey kstrey@creditlinei2.org for pretty much anything related to your credit.
The new FICO® 8 Score is fast becoming the new standard. It has already been adopted by over 3,000 banks and other financial institutions.
But is it good news or bad news for you as a consumer?
Their are multiple small changes but the two I see as the most significant are:
1. Multiple late payments will now carry a heavier penalty than in the past. These are the 30, 60, 90 day lates that show up under “Derogatory” accounts.
2. The penalties for using too much of any credit are increased. If you have any type of credit with a maximum amount available your score will be lowered if you owe more than 30% of the total maximum allowed. This can be your VISA or Sears card, or a Home Equity Line of Credit. NOTE.
This applies even if it is a company credit card in your name.
The result of these changes can mean your credit score can be lowered even if you never had a late payment in your life. Too much credit availability is a no-no. This will apply most frequently when applying for a mortgage, when the bank will assume your total debt to be the maximum amount of money you can get at with just your signature.
