Credit Score & Credit Card Debt
I did a check on countrywidecreditguard to see how are FICO scores are. My husbands is 816 and mine is 779 which I guess are good scores. The only problem is that we have a LOT of credit card debt. Most of it is at 0% interest for one year and the rest is at 3.99 for the life of the loan. So, I am a little hesitant to pay this off since they are good rates. Do you think that our large amount of credit card debt will hinder our ability to get real estate loans?
Thanks
Doubtful at those scores.
What you consider "large" your friends at Fair Isaac apparently consider negligible when compared to your incomes.
Something is fishy here. I've done 0% BT for a couple of years now, and I know that carrying $20-25k of debt on unsecured revolving credit is considered high-risk and significantly hurts your credit score. Just in combination of applying for credit and carrying balances I successfully lowered my credit score way below 700. :(
Our cc debt is about $14,000 which we consider to be a LOT but it is all in my name which I guess is why my husband's credit score is so much better than mine. We have never missed a payment on anything.
I believe there is some confusion here; your score is derived from your payment history and has absolutely nothing directly tied to your income.
As long as your payments are on-time, and you show significantly more available credit than your balances (utilization) your score will be strong - however let's say you have 20k in CC debt and only 22k in limits, your score will be penalized significantly - wheras with the same 20k in debt, but 60k in linits, your score would be improved.
My anticipation is that the only 'damage' this unsecured financing could do to your realestate is to affter your DTI ratio - since the mortgage co will certainly have access to your true income. But when you explain (prove) the interest rate is less then they are willing to offer you, they shoudl accept your judgement to keep the balances on the cards.
Thanks for the replies. I have looked again at the credit reports and mine does not have all the credit card debt on there. I transferred all the balances to the card with 0% interest and I guess that they show the cards paid off, but do not show the card with large balance on it. Do you think this will significantly affect my credit score? Also, do they average our scores to determine if it is acceptable?
Thanks.
Regarding the impact of cc debt, I would have to concur with feltman.
My experience with credit scores is that your income has absolutely no bearing on the calculation fo your fair issacs score. However, the ratio of unsecured debt to available credit IS a key factor. If that debt roll-over to the new credit card doesn't appear on your credit report yet, when it does be sure to keep an eye on this raio....
Basically, if you have existing unsecured lines of credit, this demonstrates that creditors are willing to extend you credit.
However, if those unsecured lines of credit are more than 50% used, they may begin to have an impact on your credit score. At about 75%, they most definitely have an impact. At about 90%, regardless of your payment history, you are considered a high risk and your scores will certainly show it.
Moral of the story, managing your unsecured debt ratios can have a substantial impact on your credit scores.
Quote:
On 2004-07-26 10:56, feltman wrote:
I believe there is some confusion here; your score is derived from your payment history and has absolutely nothing directly tied to your income.Yes and no. The score is influenced by "Occupation" ... and of course, occupation can be taken as a broad-brush indicator for income. I'm sure somewhere there is a bricklayer who makes more than the CEO of a Fortune 500 company, but I haven't seen an article about that show up in the Wall Street Journal to date.
http://www.creditinfocenter.com/creditreports/scoring/scoringinfluences.shtml
Flacorps, I will have to disagree with you here. Occupation or salary are absolutely NOT part of your FICO score. Some lenders may have an internal scoring system that uses that information but FICO does not.
Quote:
On 2004-07-26 22:13, GregTanner wrote:
Flacorps, I will have to disagree with you here. Occupation or salary are absolutely NOT part of your FICO score. Some lenders may have an internal scoring system that uses that information but FICO does not.
If occupation has been removed as a category with an impact on the score I apologize, but the link ( http://www.creditinfocenter.com/creditreports/scoring/scoringinfluences.shtml ) attributes to Fair Isaac an admission that they use occupation as a component of their scoring model (as of 1999). I would also suggest that if they have teased out "occupation" it is because they have found some other factor or combination of factors (zipcode could be part of it) that provide a similar result.
Hi Flacorps,
I was going off the info from their website, but that doesn't always mean anything. What the CRAs and Fair Issac tell us and what is the truth don't always match.
http://www.myfico.com/myfico/CreditCentral/ScoringWorks/FICOIgnores.asp
Quote:
On 2004-07-27 08:17, GregTanner wrote:
Hi Flacorps,
I was going off the info from their website, but that doesn't always mean anything. What the CRAs and Fair Issac tell us and what is the truth don't always match.
http://www.myfico.com/myfico/CreditCentral/ScoringWorks/FICOIgnores.asp
Since FICO sells a number of different scores, they're probably discussing on their website just the one that is convenient to discuss (meaning the one that doesn't use a bunch of factors they claim not to use on the website). Other types of FICO scores not discussed there probably do use some of those factors.
Of course, you can also parse their claim that they don't take into account "where you live" to mean the specific address. As in "we don't take into account where you live on Elm St., we take points from everyone on Elm St. because it has a high percentage of deadbeats." Or they may just go by zipcode, etc.
No. You've excellent scores. What greatly affects your score is the oustanding and unpaid percentage of the high credit LIMIT of each revolving type account (credit cards)
Excuse the long posting. Maybe the following will help someone.
Knowing and Understanding Your Credit Score (FICO)
What factors affect your credit score?
There are five factors which are used in credit scoring calculations that determine your overall credit score. Each factor has a determined "weight" on your score:
The “Weight” of each factor on a Credit Score is:
- 35% - Late payments, collections, bankruptcies, past dues, etc. (These are known as “Derogatory Items”)
- 30% - Outstanding debt- balances on accounts (As percentages of overall available credit)
These first two factors are 65% of your Credit Score! The good news about the weight of these items is that you can do something about most of these items quickly if you want to raise your FICO, whereas with the other “weighted” items below, you cannot change them as quickly. It is to your advantage to first work on the heavier weighted items if you're looking to boost your score quicker.
- 15% - Length of credit history
- 10% - Types of credit accounts (Revolving, installment or mortgage),
and last,
- 10% - Inquiries (applications for new credit)
_________________
Fair, Isaac and Co. is the San Rafael, California Company founded in 1956 by Bill Fair and Earl Isaac. They pioneered the field of credit scoring for financial companies. They have expanded their enterprise to cover decision systems, analytics and consulting. Every credit agency, and most lenders, will calculate your credit score using software from FICO (Beacon) or in house software based on the FICO rating system.
What does your score mean?
This rating system is meant to develop a snapshot of the risk you currently represent to a lender. Several parameters in your credit file, including length of credit history, number of open accounts, loans, mortgages, public records, and others are formulated to produce a three-digit score between about 300 and 950. There are other scores used by lenders and insurance companies (some of which are developed by FICO) such as Application and Behavior scores. These other scores take other information into account. Usually a lender will use a combination of your credit score with other factors when determining your risk. They all have the same objective, to determine the borrower’s potential risk. Regardless of whether the score was generated by FICO or a system based on FICO parameters, they all yield an industry standard three-digit score. This score places the borrower in one of three main categories (I named the third myself)
Prime, sub-prime, and shafted
Prime If your credit score is above 680, you are considered a "prime borrower" and will have no problem getting a good interest rate on your home loan, car loan, or credit card.
Sub-prime If your credit score is below 680, you are "sub prime", and will likely pay a much higher interest rate on your loan.
Shafted Below 560 is the shafted score. At least that is how most lenders and credit issuers perceive it. You can still get a credit card but you will likely be hit with a security deposit or high acquisition fee. In addition to that your interest rate will likely be 22 to 23%. You can forget about most home loans and the majority of new car loans at this score. Below 560 is no place to be. You will pay much, much more in higher interest and unnecessary fees. You may even pay more for your insurance rates. A very low score can even prevent you from getting a job with many companies.