When Banks Hone in on FICO Scores, You suffer
Mortgage banks continue to assure consumers that their FICO score isnt the only factor used in determining their ability to approve or deny the loan, but in all reality if your FICO scores are not where they are supposed to be you are not getting the loan.
Most analysts and even consumers would agree that mortgage underwriting standards were almost criminally lax before the housing bubble burst. Now the pendulum has swung to the far side of the credit risk world and even people with high 700 credit scores cant get approved to do a low interest balance transfer on a credit card. When will it end?
A frustrated board member of the National Association of Mortgage Brokers complained to The New York Times about the practice, charging that over-reliance on FICO scores is disqualifying many mortgage applicants from obtaining loans. In a July 22, 2010 online article, Deb Killian, co-owner of Charter Oak Lending Group in Danbury, Connecticut, told the Times she receives daily notices from banks and lenders indicating that a customer’s credit score has been the primary determining factor in the approval or denial of a mortgage loan.
With 15 years experience as a mortgage broker, Killian has noticed not only an increase in the minimum FICO score needed to obtain a mortgage but a disturbing trend among mortgage lenders to consider a certain FICO score a line in the sand that can’t be crossed. In other words, mortgage applicants who don’t exhibit the proper FICO score — generally a minimum of 700 these days — are categorically refused. Other factors that might present a more accurate picture of an applicant’s ability to repay a loan, such as amount of home equity, ratio of debt to income, job stability and cash reserves, are ignored if the applicant’s FICO score comes up short.
Critics call the mortgage industry’s over-reliance on FICO scores shortsighted and charge it with slowing economic recovery. The bottom line is that consumers pay the price. When their FICO score doesn’t meet lending standards, nothing short of expert help from a credit repair professional can help a consumer cross that arbitary line in the sand