FICO Finance

by James & Miel on September 3, 2006 · 0 comments

Because of our pending re-finance, we got a letter from the bank with our credit scores. Going over the letter got us taking, so we want to share our scores and thoughts on the rating system. As usual, Miel’s score (776) was rated higher than James (750). Overall the ratings were similar for both of us, but here is a breakdown of what made the difference:

1) Lack of credit card use has impacted both James and Miel. An interesting factor is, that while James only has a debit card and Miel has a credit card she uses regularly for work and pays off monthly, we both got dinged for not having enough use of credit cards.

2) Old issues die hard. James had an issue back in 2000 with Bally’s Fitness, that was resolved but still shows up on his credit rating. Needless to say, a good lesson in learning to read the fine print.

3) Another factor for James vs. Miel was a loan to balance ratio. James had refinanced his investment property, and had not paid down a sufficiently large portion of the loan and has incurred some student loans which he has also not begun to pay down.

4) We both got dinged for having our credit checked for student loans and for refinancing.

James: The Bally Fitness thing, was my fault and I take responsibility for that. I think the thing to recognize is that the FICO score has certain irrationalities. The best thing to do is figure them out and work within the system to maximize your score.

Miel: I’m of the mindset to learn about how FICO scores are calculated, and then to beat them at their own game. I also feel a certain responsibility to advise young people about how the system works so they don’t make credit mistakes that will impact them later in life.

The good news is, we both are in the top brackets for credit scores, and are therefore eligible for the best possible rate in our pending refinance. We used mortgage calculators to calculate that if we refinanced our current loan with the lowest score bracket, it would cost us $13k over the life of the loan. Not a bad incentive to play by the rules, even if they don’t always make sense.

James&ampMiel

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