FIFO scores

[kir]

Hi, I should be directing this to a credit specialist, I think.

However, I interested to know if anybody has information regarding how an interest-only mortgage will

affect one`s FIFO score. The balance owing will show up on your credit report and typically, it would be maxed out since , in my case,

I`m only paying interest. I positive cashflow on all properties, yet, the credit report states that one factor for my FIFO score is that: " I owe too much on revolving lines of credits or non-revolving lines of credit is too high". So if this is the case, what would happen to my FIFO score if I shift my secured lines of credit into fixed mortgages?


According to Fair, Isaac, the breakdown of your FICO score is as follows:

35% of the score is determined by payment histories on your credit accounts, with recent history weighted a bit more heavily than the distant past;
30% is based upon the amount of debt you have outstanding with all creditors;
15% is produced on the basis of how long you`ve been a credit user (a longer history is better if you`ve always made timely payments);
10% is comprised of very recent history, based on your efforts to obtain loans or credit lines in the past few months;
10% is calculated from the mix of credit you hold, including installment loans (like car loans), leases, mortgages, credit cards, etc.


So if an investor has many interest-only mortgages, your credit report would state that you have lots of debt. However, the same investor have have good payment histories as well.

For those of us who like to generate the highest score as possible, should rein investors be concern about obtaining interest only mortgages? Any general thought or comments?



Thanks,

Kir Luong, 995-4050
All Banners Realty,
Edmonton, AB.

 

[MikeMcCrae]

Interest only debt is still debt. Every thing that appears on your bureau will affect your score. I always advise my clients to keep all debts below 50% of available balances to keep scores the highest. Fixed rate mortgages reduce your flexability but are often a good way to go because they do not affect your score. Also some lenders calculate payments on lines of credit unfavorably which hurts your debt servicing ratios. Lines of credit are good tools in some cases but as always you have to look at more factors.

 

[RobMacdonald]

You are correct, that the line of credit will affect your score, but my how much seems to be the endless topic. I`ve met lots of clients that `stress out` about an extra inquiry, or a single R2 and they have a 740 beacon score. It really depends what `sandbox` you`re playing in. If you`re looking for mortgages from the Top 5 Banks and "A" lenders, any score over 620 will usually qualify. Now there are certain products that will look for a 680 beacon, and a few specialized, usually high ratio products needing a 720 score.

Now if you`re in the `sub prime` arena, then score may make a difference with respect to the price you pay, and each lender will have a different matrix going down to as low as 540 in many cases.

Most lenders do not rely solely on the FICO score, and if you have a blemish, a good explanation will many times be acceptable. The most important thing, pay your bills on time. I`ve never come across a client that had readvancable mortgages, maxed out, and was being turned down due to credit score. It normally works itself out. The lender will generally understand, and look at the trend.

 

[KimFranz]

Hi Kir,

I had that same message on my Equifax report as well, but when I looked, the amount owing on credit cards and LOC`s was only 5% of the amount available to me, and I always pay off my credit cards every month. I think maybe they put that message on there if they can`t find anything else to talk about on your credit score. I would recommend keeping in good contact with your mortgage broker and make sure that they know your future plans for real estate purchases and just keep your eye on the big number only - FICO score.

Kim