Cyn and I are looking for a new house.
We have a house with a mortgage balance of $134K and an appraised value of $156K. Comparable sales in our neighborhood are running just shy of $200K.
The question is this:
If the house is truly worth $200K would having it somehow offically declared so (appraisal/whatever) improve our credit due to a lower debt to asset ratio kinda like available balance on credit cards?
Thank you
Drach
Credit not cedit in the title, would a kind mod please fix
No, it won’t do anything. The credit score only looks at your “credit”. Your credit in this case is based only on your mortgage, your mortgage payment history, and your debt ratio on the load itself. That is all that it is built to look at.
If you want proof, simply request a free copy of your credit reports through the 3 major agencies and take a look. You should really do that anyway. That will make it clear very quickly what is and isn’t on a credit report. They are more straightforward than most people think.
You could have a draw full of appraised diamonds and it won’t change your credit score. You could also get a three billion dollar a year raise and it won’t change your credit score. It only looks at actual credit accounts.
Note to mention crap like “inquiries”, which have about as much validity for your real creditworthy-ness as reading tea leaves.
More specifically, hard inquiries are the only ones that can lower your score. Personal inquiries and “soft inquiries”, where credit providers check the basics of the report to see if one would be "pre-qualified, don’t affect one’s score.
The only time I can think of when the credit board takes dollar numbers into account is when the debt to credit ratio is high (a.k.a. usage). If a credit card has a $10K limit and $9500.00 is charged on it, it will lower the score. If the same credit card has only $250.00 on it, it won’t lower the score.
What’s a “hard inquiry”?
Ahard inquiry occurs when you seek to obtain credit. This happens when you apply for a loan or credit card, for example. Each time you fill out a credit card application at a department store, the inquiry counts as a hard inquiry.
I thought the idea was to calculate credit scores based on proven statistics. So if there is a correlation between people who have loads of queries and deadbeats then it would be taken into account, otherwise not. This would not be based on someone’s preconcieved ideas of what affects risk but rather a more objective number crunching.
In which case, from the point of view of a company analyzing risk it would be a perfectly sensible thing to look at.
According to the developer of the FICO score:
http://www.myfico.com/Offers/myFICO_UYCS%20booklet.pdf (pdf) (p. 14)
Let’s set the credit question aside for a moment, looks like you can save money on PMI.
I’m assuming that the appraised value you quote was when you bought the house. At that price you have about 14% equity. Since it’s below 20%, you must have Private Mortgage Insurance (PMI), which you pay to your lender as part of your monthly payment. But at 200K, you now have 33% equity, and should no longer have to pay it. You may have to pay around $300 for a professional appraisal to give your lender but it will be worth in.
If, OTOH, that appraised value is recent, then never mind.
Sure, but that’s 100th of 1% (not many dudes actually file for bankuptcy). In most cases there is no direct correlation between “inquiries” and actual credit-worthyness.
Please explain this further, and cite it.
It appears that there is a direct correlation between [hard] inquiries, and the rate of default—specifically the rate of bankruptcy.
I know for a fact that the inquiries will lower your FICO score.
I don’t have their statistics, so I can’t really argue the point. But where do you get your data?
Overall filing statistics indicate that 1/73 households filed in the twelve-month period ending March 31, 2004. http://www.abiworld.org/statcharts/HouseRank.htm. In 2004, more than 1.5 million people filed for bankruptcy. http://en.wikipedia.org/wiki/Chapter_11
I’m not sure I understand the claim that “in most cases” there is no direct correlation between ‘inquiries’ and actual credit-worth*ness." After all FICO is a statistical model based on correlations of default and bankruptcy with various elements of a credit report. “Most cases” aren’t especially relevant unless they are a part of the pool of data on which FICO based its model.
I’m more than willing to entertain the hypothesis that Fair Isaac either did the math wrong or is lying about its data, but you really haven’t come forward with anything that supports that conclusion. If a tiny proportion of people actually file for bankruptcy, and a high number of inquiries makes a person eight times more likely to be in that tiny group, the information is no less relevant.
OTOH, FICO hasn’t really given us enough information for us to evaluate their claim, either.
Conversely, the amount of change in predicted likelihood of mortgage imputed by calculated credit scores is actually relatively small. [1] [2]
If you’re in the “deadbeat” range with a score between 350 and 600, inquiries do almost no damage. If someone gives you a loan in this credit bracket, it’s not that you’ll PROBABLY default, but there is a substantial chance you will [3].
On the other hand, the stated (by Fair Isaac) odds that someone with an 800 will default are danged low.
The largest documented drop in a score due to a single inquiry was a score around 780 dropping 30 points. If you were to plot out the odds of default between 750 and 780, you’d find that the real change in likelihood of default goes from “well nigh impossible” to “danged near impossible”.
Finally, I believe that when you say “there is no direct correlation between [inquiries] and [credit-worthiness]” you are incorrect. If FICO says there’s a correlation, I’m inlined to believe there is. If you really meant that there is no causative relationship between the two values, I’ll grant you that. You may have a new inquiry for no worse reason than the fact that you renewed your cell phone contract early or decided to call the gecko and ask him for a car insurance quote.
[1] http://www.manufacturedhousing.org/lending_news/default.asp?id=1&article=4
"If a lender makes mortgage loans only to consumers that have a FICO of 800 or above, then statistically only one loan in 1,292 will default in the first year–nice odds! When the consumer’s score is 700-719, then one loan in 123 will default. When the consumer’s score is 600 or below then statistically one loan in every EIGHT will default. "
[2] Remember, FICO scores are really for mortgage prediction!
[3] From the perspective of a lender, anyway. With relatively small margins in lending, a few lossy defaults can erase the profit from years of performing loan assets.
And the population of the United States is around 300 Million. Thus 1 in 200 dudes filed. (Sue me I exaggerated 
). Ok, there well might be a correlation, but there is no direct causitive agent in 99% of the cases where a Inquiry is on file. In other words, an Inquiry has a 100% chance of affecting your score, but only a slight chance of really being a warning sign. I don’t doubt that in one person in a 100 an inquiy makes a significant difference- the problem is that it’s costing the other 99 money too.
And, if you want a Mortgage, the difference between 750 and 780 can cost you 10’s of thousands of $$ over a 30 year Mortgage.
Lastly- FICO keeps their reasons and exact scoring systems secret.
The point I am trying to make is that yes, we know that calling “the gecko” 
and asking for a new quote really isn’t an indicator of potential problems. But FICO reduces your credit anyway, as their system isn’t based upon individual facts, just their scoring sytem. Banks & lending companies are lockstep with FICO. Thus a secret and manifestly unfair (to an individual) system is costing Americans millions.
OK, lets put it this way.
You have a spare $20 in your pocket. Two of your cow-orkers ask if you can spare them $20 for lunch cause they left their wallet at home.
You know that cow-orker A is eight times more likely to stiff you than cow-orker B.
Who are you going to lend your money to?
Don’t forget we are not just talking just one inquiry to the gecko for auto insurance. We are talking about more than 6 hard inquires.
No, we don’t., and that’s the whole point We may know that cow-orker A is a member of a demographic group that statistically speaking is 8 times more likely to stiff you. But if you know that Abigale has never stiffed you, always pays you back on time, and even will lend you lunch money at times- who gives a fuck what demographic group she belongs to? :rolleyes:
Right. And if you were the only banker in a very, very small town you might have enough data to make the kind of decision that you just made in your example.
However, once you’re in a town of 30,000 or more, the odds of your rate of success using “judgemental lending” (an old-timey non-FICO credit decision system) beating a modern scoring system are close to nil.
They’ve got studies on this.
If you don’t use Fair Isaac or a similar system, there are two ways to not lose your shirt lending money.
Banks make more money in the FICO system than they do in either of the two above options.
In the end, statistical scoring systems, rather than hurting consumers, bring prices down for everyone and increase the availability of credit…