FICO VantageScore and the Mortgage Catch-22
Posted on January 02, 2007 by Her and tagged fico
EDIT: Original title referenced my FICO score, when I actually meant to reference my VantageScore. VantageSCore and FICO are not related, and each uses a unique formula to calculate a score. FICO does not consider the lack of a mortgage in calculating your score.
I just got my credit score, which is based on the new Vantage Score model. My current score is 725 on a scale of 501-990. According to the credit score analysis, one of the primary reasons my score is so low is that I "have no real estate accounts." (The other primary reasons all involve the fact that I have too much credit card debt. We will have all the credit card debt paid off in a year, so I am not too concerned about that.)
I am interested in improving my credit score because I believe we will be shopping for a mortgage in a few years. I have enough time before then to take steps to improve my credit score in order to qualify for a lower interest rate. But it seems that I am caught in a catch-22: my score is low because I don't have a mortgage, but I will need a high credit score to get a good mortgage rate. Has anyone else had this problem? How did you work around it?
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I applied for my first mortgage just over four years ago. I was 23, had a short credit history (4-5 years), and no previous mortgages. My credit score was in the top tier and I was able to get a great rate.
I doubt that having no real estate accounts can negatively impact a credit score that much. As a matter of fact, my husband and I are in the process of buying an apartment building right now and he hasn't had any credit problems despite never having had a mortgage before (I bought the house before we were married).
GreenfieldGirl | Jan 2, 2007
I bought my first house this year at 22 and a credit score of about 730. My trick was to use the state's "First Home Buying Program" which gave me a fixed interest rate of 6%. Looking into your state's programs certainly couldn't hurt.
Sarah | Jan 2, 2007
I agree with Greenfield Girl. I had a great credit score, but no real credit history for payments since I did not have any student loans and my car loan was only a month old. I was able to get a fixed 5.75% loan from the first time homebuyers program in my state, basically the same rate as any other mortgage offers. Go see a mortgage agent who specializes in first-time homebuyers, they will work with you. Even if you're not in the market now, a good agent will walk you through the process and crunch numbers to give you an accurate picture of what to expect. Also find out if they'll even be using the Vantage score. I didn't think banks were making that switch for awhile.
Dustin | Jan 2, 2007
Paying down your credit cards will have a pretty big, positive impact on your credit score. I made a big push to pay off credit cards / transfer balances to my wife's a few months before I applied for a mortgage and I believe I gained 30ish points from that effort. Somebody might have a definate answer to this, but I believe a credit score of 750+ is going to get you the best rates. In other words, a score of 750 is as good as 825.
p.s. your copyright note needs to be updated. It's 2007!
Being out of debt is going to be a huge boost to your score. Also, I think that most mortgage companies still use the standard FICO ratings from the 3 credit reporting agencies and not the new Vantage scores. So, your rating is probably a lot better than you think it is.
Christiana | Jan 3, 2007
The bank with whom you apply for a mortgage looks at the overall credit report, not just the blanket score. If your score is only lower because of "no real estate" they will realize that and not find it a problem. Paying down your credit card debt will probably be more beneficial than anything.
just chiming in on the credit card debt - though I'd once read that credit utilization was also a big factor. We worked to make sure that our credit utilization was at least less than 50% though much closer to 10-30%.
leigh | Jan 4, 2007
Your credit score is actually pretty good. The range is 501-825 from what I've been told and I work for one of the nations leading homebuilders. Most loan officers consider a score of 700-730 a medium risk offering you a decent rate. Anything over 730-825 is excellent credit and the poster above is correct that it doesn't matter if your score is 730 or 780 or 825 you will get the same rate.
My FICO score is 719. The main reason it isn't higher is that the accounts I have have all been open less than five years though my US credit history goes back to 1990. I don't own real estate.
Gaming the Credit System | Jan 6, 2007
You should totally forget about the "Vantage Score." Whoever's selling that is a snake oil salesman. Get a real FICO score. Nobody uses or cares about the Vantage score. Most of the commenters here aren't even paying attention and are assuming that your 725 is a FICO -- it's not, and you should change your title to reflect that.
"725 on the Vantage Score" means about as much "4.3 billion on the Make Love, Not Debt Scale". It's just a number, without any context or meaning. There are other fake credit scores out there too -- e.g. the "TrueCredit" score. Get your real FICO score and post it; then people will really be able to tell you what to expect when it comes to mortgages.
BTW: The real FICO doesn't take into account mortgage debt vs. other debt. Not having a mortgage will typically not lower your FICO score, although not having any installment loans at all will. Also, my blog is all about improving your credit score, so please check it out. :)
LivingAlmostLarge | Jan 7, 2007
I bought a house too at 22 and DH a foreigner without CC or proper visa. So I had a credit score of 710ish, and got a great rate. Apparently it was enough to qualify me. Until then I never had CC debt, only a paid off school loan.
But my issue was FICO said you haven't had a long enough credit history for a really high score. Way to fix? Get older. Yeah, well now I guess it's okay, I'll check it later this year.
Here is a novel idea... ask for a "manual underwriting" for your mortgage. This is the way it was originally done before the credit card companies took everything over; before credit scores. A "real" mortgage company will do the underwriting looking at your true financial situation and evaluate the risk and the rates you qualify for through this, not some credit score number that does not truely reflect your financial outlook.
Do you all realise what a credit score means? That you are good at keeping and staying in debt!!! since when is debt a good thing?
Just a couple of thoughts to ponder... good luck on getting a mortgage when the time comes...
cory | Jan 2, 2007
You won't get a horrible mortgage, you just may not get the best rate on the market. After your credit score improves to reflect the new diversified debt, you'll be able to refi (if you need to, that is, don't refinance your mortgage to save $0.36/mo on interest).
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