According to the National Association of Realtors (NAR), FICO is a major reason why they are not selling more homes – and not for the reasons that you might initially think. While there are a lot of people out there with deservedly low FICO scores due to various credit mishaps and delinquencies, says NAR, there are many other solid buyers who cannot get home loans who should be able to get them. NAR blames this on FICO practices that allow bank decisions about lines of credit based on market conditions rather than consumer and borrower performance to negatively impact scores[1].
For example, imagine that you have a line of equity on your home for $50,000, but due to market conditions and the declining value of homes in your area, your lender decides to reduce the max on that line to $20,000. You have paid on time and nothing is delinquent. You just now only have $20,000 to work with, and you owe about $17,000. Before the reduction, you were way under your limit, but now, you are about maxed out, which reflects negatively on your FICO score when you are evaluated for risk when you apply for a loan. As a result, realtors are finding that “people who are responsible users of credit” are suddenly unable to qualify for home loans and/or low interest rates that their past borrowing behavior, income and down payments indicate that they should be able to get.
Tom Salomone, a broker in Coral Springs, Florida, sums up the situation, saying: “There is absolutely no question these credit card and home equity line reductions are killing deals.” NAR is asking FICO to revise its scoring model to “help out with the nationwide foreclosure crisis.” Currently, FICO does not factor in bank and lender activity when evaluating a person’s credit situation, risk and score.
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[1] http://www.latimes.com/business/realestate/la-fi-harney-20101121-7,0,6076482.story
I am equally curious as to how information such as borrowers’ number of children and years of education are scored-is the PhD given extra positive points to their score for receiving their 8 year degree vs. the high school graduate with 10 years of brokerage practice and continuous self education? Either the three bureaus providing the scores and banks will need to change the current scenario or the opportunity for private lenders with their own self devised scoring of individual financials with competitive guidelines will come to the fore.
There are other areas where room for improvement is needed including ways that first time borrowers (including those who have not owned a home for over 5 years) would be able to solicit as many consecutive years of good rental history from past landlords, certify or notarize them and submit them to the three credit bureaus with applicable scoring demonstrative of stable payment history. Also, for those receiving stable/permanent pension income there needs to be additional positive points added to the individual credit files, how do you help a Veteran into a home with consistent pension income and no savings?
Well Duh!!
BULL SHIT
WHY THE MARKEt PLACE DOES NOT EFFECT YOUR CREDIT SCORE…………………..the end
Two points: 1). Dispute any HELOC (not) reported as a mortgage – many (yes, MANY) HELOCs are showing revolving. 2). @ddsoffice – education, income, etc are NOT factored into scoring algo. Further, rent payments, utility payments, etc are NOT reported either. They should be but they’re not. The Big 3 (wanting to shut Fair, Isaac out of the profits) has introduced their “VantageScore.” Mortgage bankers are not transitioning from Fair, Isaac (aka FICO) however. Here’s one recommendation I make to people contacting me for credit help: Go to http://www.prbc.com and get them to verify and report ALL payments not reported to the Big 3. PRBC Credit Reporting Agency’s Consumer Report with FICO® Expansion® Score includes independently verified “nontraditional” payment data to show potential creditors you really do pay your bills on time.Today, 43.4 MILLION Americans suffer “F” credit 599 and lower. No doubt, bad credit (is) hurts more than when trying to buy a house. Last Friday, 2 different people contacted me for help keeping their JOBS – bad credit is jeopardizing their employment: one is military with security clearance. He must keep good credit or he loses his security clearance. The other person is vanilla white collar who says he keeps moving through the interview process. However, at the final round the employer rejects him because of his (poor) credit. No security clearance involved. Employers ARE rejecting applicants based on credit. Why? Because they can, that’s why. Last week, a friend told me he is damn lucky to get a $10.22 /hr position when 216 people applied for the same position. Though my friend used to make $80K a year, he’s happy to get this $10.22 /hr job. It’s hard enough to get a job today. Bad credit adds insult to injury. This is not just realtors upset over too few (qualified) buyers. This is much worse. Mike
The banks need to justify their reasoning for lowering the lines of credit for an uncounted number of individuals. The example that was given is becoming more and more prevalent, with no real end in site. Unless someone steps in to correct this problem it will continue to plague the populous and the industry.
Simply, the reduction of the Credit Limit should not have been applied to anyone who had never been in an obvious state of non payment with a Particular Bank, to beggin with.
Get now that, Any Bank applied it to their customers no matter paying or not paying without even any chance to reverse that once the credits will be paid off!
That has been a pure empowerment of the banks to the detriment of the customers FEDERALLY.
The one who regulates those banks IS THE ONE TO BLAME, the one who really had to care about US, customers.
I agree. One of the worst situations I’ve had is Chase reported a late payment for less than $10 I supposedly owed to AOL. AOL said I did not owe it and they did not report it to the bureaus. Chase themselves told me not to pay it for a month until they straightened out their own paperwork on it, but still dinged my credit with it, and by then they turned it into a 60 day late. Only negative in my whole history of close to 40 years of credit. They then caused BOA to reduce two lines of credit I had with them at REALLY good rates because I no longer fit the perfect scores they relied on. Then Chase gave me another line of credit, then reduced that and immediately raised the rate from a promo on the line they claimed was delinquent because of THEIR instrutions on how to handle THEIR goof. We are talking way below 10% to close to 20%. A business can’t plan with such arbitrarily changing terms. What I have noticed is folks like Capital One give a promo rate, then raise rates higher than similar creditors after you carry a balance so you get no deal at all really. All this chicanry is flying under the regulatory radar.
Then they reduce your limits as you mention in this article so your numbers look bad, even if you pay every month on time. For some reason some are pushing you to pay the entire balance off on accounts that have higher interest rates. The excuse in their literature and when you talk to a rep is they can’t make money that way. How the bleep can you not make money at 15% rates when money costs lenders almost nothing now? I suspect their books are iffy reg wise and they want to massage them a bit using older accounts they set up strangely to begin with. One told me like an accusing teacher that they relied on $80,000 in income when they granted me credit. I gave NONE of them an income figure. It was all pre-approved many years ago and I never used the credit lines until I got back into the housing market recently. And have only used it since because of the iffy market THEIR practices largely caused to keep a cash flow going. Right now in my farm area banks are paying a third of the property taxes citizens pay on the same types of houses. They are not required to keep up with codes, thus ruining rental and sale markets further. No political party right now seems to have the balls to give up lobbyist monies and work for rehabbers and the people who need affordable housing.
@Mike Payne
Many employers are also only hiring folks who already have a job now. It is starting to even appear in their official HR documentation around the country. Protests have caused some to back away from checking credit ratings for some types of jobs. Keep pushing back folks.
Where is the common sense in all this. Not having common sense is what put us in this current situation and they still lack to use it. What I am trying to say is I know the FICO score is killing many deals for good loans. Here is an example. I have a wonderful woman renting a house from me. She pays $800 a month rent and loves the house so much she asked if she can buy it from me. I agreed. She has great income for the area in which she lives. Her credit score was a bit lower than the required score needed to get a mortgage so the bank told her she should start to pay off more of her credit card balances. As she began to pay down her credit card balances the credit card companies reduced her line of credit causing the same result as this topic we are discussing. Now here is a woman that has been paying me $800 per month on time for almost 2 yrs now and when she closes on a loan her mortgage payments will only be around $400 depending on the terms of the loan. I ask you Where Is The Common Sense? I would give this loan all day.
Bobby Coyle
Bradco Enterprises Inc.