Taylor-Shoff, “even for those people who make all their payments on time. Generally, scores tend to cluster around a mean, with a bell-shaped distribution.” For example, with a FICO score of 680 or higher, you’ll likely be considered a premium-quality borrower and possibly qualify for a lower rate on a mortgage. With a FICO score of 620 or lower, you’ll be placed in the “high risk” category.
“We don’t push borrowers off a ‘credit cliff,’” says Ducey, implying that a FICO score under 620 won’t send you into free-fall. “We recommend that mortgage applicants be given one of three ratings: approved, refer to underwriting or refer with caution. If a borrower’s score is below 620, the lender probably would look for other ways to reduce the loan’s risk, such as a higher down payment in relationship to the value of the home. If a lender determines that an applicant is not ready for a mortgage yet, some counseling may be needed to bring up the score.”
GETTING THE SCORE YOU NEED
That was the case when James and Kimberly Stagge of St. Louis applied for a mortgage last year. “We had had some problems in 1995,” recalls Kimberly, 32, a federal government employee married to a city police officer. “I’d been sick, my husband was in a car accident and we fell behind on some of our payments. Things had improved by 1997, but when we applied for our mortgage, those problems were on our record.”
Norwest Mortgage, based in Des Moines, Iowa, enrolled the Stagges in its “Home Buyers Club,” a program that provides free counseling and helps clients negotiate with creditors. “We were told we needed to show on-time payments for two years,” says Kimberly. “Our latest delinquency was reported in F
ebruary 1996. So we followed the program, kept our payments current and in February 1998 got the mortgage we needed to buy our home.”
If you’re in the market for a mortgage, what might bring your FICO score down to the dreaded 620 level? Ducey is reluctant to provide hard-and-fast details because individual circumstances vary. “Typically, though, you’d need to show 90-day delinquencies, charge-offs, repossessions, or a bankruptcy to come in at that level. Alternatively, you might receive a low score by using your credit cards heavily, even if you’re paying the minimum amount that’s due. A minor delinquency a couple of years ago won’t, by itself, drop your score to 620 or below.”
For a free brochure that explains the use of credit scoring for home mortgages, What are Credit Scoring and Automated Underwriting?, call Fannie Mae at 800-732-6643 or visit the consumer Web site at www.homepath.com.
How can you get your credit score from a 620 (doubtful) to a 680 (desirable), or make a similar leap in some other scoring system? “The best thing you can do is keep paying your bills on time,” advises Taylor-Shoff. Can a consumer turn an “F” into an “A” in a year? “That’s hard to say because there are so many factors involved,” she says.