Jan
30
Written by:
Mortgage Blog
1/30/2012 8:20 AM
Up until a few years ago, few people outside of the mortgage industry knew what a FICO score was. Now, it seems that many people make decisions purely based on how something may or may not impact their credit scores, which in turn impacts their ability to borrow. As a quick refresher, the score is representative of how the borrower has upheld their debt obligations in the past. But of great interest now is answering the question, “Did your credit score drop in the last few years?”
As opposed to the grades we all received in school, which ranged from A to F (with no “E”, which can be mistakenly confused with “Exceptional”), FICO scores range from 850 to 350. Studies have shown that average credit scores have dropped in the last few years. Many lost 100 points or more because of the most severe delinquencies. Any borrower falling behind three months or more on mortgage loan payments probably were hit 130 points in their FICO score, and anyone involved in a short sale were hit 160 points. And this has led to financing issues.
During the same period, lenders began ratcheting up their standards for acceptable scores and for preferential fees and interest rates that are offered to loan applicants with the highest scores: loans originated for purchase or guarantee by the two dominant home-loan investors (Fannie Mae and Freddie Mac) now carry average FICO credit scores in the 760 range and above, and FHA loans now have average credit scores slightly above 700.
Even if your credit score has dropped, all is not lost, and your mortgage loan originator can help put you in the rebuilding mode if you seriously want another mortgage. As a more immediate alternative, though, keep FHA in mind – it still accepts lower credit scores and is more open than other financing sources to hearing about “extenuating circumstances” — unexpected job loss, medical problems, divorce and other issues — that caused your credit score to plunge in the first place.