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Bouncing Credit Scores

An Active Rain associate, Philip Turner, recently posted a member's only blog on not making any changes during the loan process. This is in relation to purchasing anything new with credit. I agree wholeheartedly and would like to illustrate this with a client that I'm currently working with.

Bill (not his real name) was referred to me by an agent that I'm working with. He was in the process of purchasing a new property and selling one of his rentals. His credit score was around 650. He had no derogatory marks on his credit but did have high balances on both of his credit cards. Our intention was to pay his debt down once he sold his rental.

I ran a scenario through a "what if" simulator that my credit reporting company has and found that if we left around $100 on both cards his scores would raise by at least 50 points. This would put him in a great loan at 95% CLTV.

Several weeks later I reran his credit as we were faced with a decision and I wanted to make sure taht we were ok. His scores had decreased to about 642. Ouch! Other than my credit pull, the only other action was an additional $1000 placed on his credit cards.

Fast forward to last Friday. He has sold his rental, paid his cards down to around $300 each and we have successfully updated his credit report with all three bureaus. He now has a 713, 705 and 698. We will be able to place him into a great loan.

I bring this up to show how much a credit score can flucuate in a very short time period.

Larry Morris is a Certified Mortgage Planning Specialist with American Nationwide Mortgage Company in Newberg, Oregon. He specializes in USDA Guaranteed Rural Home Loans, FHA Purchase and Refinance, FHA 203k Rehab loans, Sect 184 Native American loans, Hobby Farm loans and conforming purchase and refinances in the states of Oregon and Washington.

He can be reached at 503-421-0096, or larry@PDX-Mortgage.com.

www.PDX-Mortgage.com

OR License ML-3259
WA License WA-510-LO-51175

APR rates are subject to change based on lender's normal credit guidelines and market conditions.

HUD

Posted by Larry Morris, Oregon Mortgages on 03/26/2007 07:39 AM

Comments (6)

credit scores, credit card debt

Originally posted at: Oregon Mortgage News: Bouncing Credit Scores

6 Comments on Bouncing Credit Scores

MAR

2007

Larry - Interesting that the changes can happen so quickly - a process to keep in mind for "marginal" borrowers.

Even good credit borrowers. There are loan programs that give better rates or higher CLTV for 730+ credit scores. A loan could fall apart if the mortgage broker used one of them and then the lender re-pulled credit and the scores dropped to 729... I've seen 800 scores drop to 740 due to needing to use credit cards to move across country. Luckily it didn't matter in that case.

This is very interesting. I think it is important for the loan originators to clearly explain this to the borrower. I think many do not. Thanks for the illustration -- I had no idea things could fluctuate so greatly.

Joan, I agree, but it's equally important for Realtors to mention this as well. Often you have a better relationship and hear more about their plans and dreams. Plus, your paycheck is tied to it as well. While the buyer might only see an increased interest rate, it could be unaffordable, or require a larger downpayment. Either of these ccould make the deal fall apart.

I was told the the ideal scenario with credit cards was to carry a 30% balance on the cards. Does that sound about right?

It goes in tiers. Ideal would be to keep it around 10%. Realistically, keeping it below 30-50% and you'll be ok. If you know that you'll be purchasing something big pay your cards down. 30 days prior.

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Bouncing Credit Scores

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