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My wife and I are looking to purchase a new home. We recently had our credit scores run and while we have excellent credit we were significantly dinged for rolling debt. The problem is that all of our cash expenses are put on credit cards to gain the benefits of having credit cards(extended warranty, bonus points, miles, etc). We never roll credit card debt from month to month. Our only recurring debt is our current home(which has about 60% equity) and two very modest cars that have maybe $20k in debt left on them. Those items amount to a Debt to (gross) Income ratio of 27%. However, with credit cards, we end up paying mortgage, car payments and credit card debt of about about 50% Debt to Income ratio. Rest are the money goes into things like savings, medical insurance, taxes, etc. We live within our means easily and are saving up properly in our retirement fund, HSA, etc but we both feel there is a wicked irony that we pay all our cc debt monthly and get dinged for it. Other than just using cash for more transactions or is there any way to avoid getting dinged like this? My wife suggested paying the credit cards ahead of the monthly bill. Our spending is very consistent and outside of holiday season our credit card payments never vary more than 10% so we could just pay a weekly amount as our credit card company lets us pay off early before we get the bill. Would this work? Is the rolling debt based strictly on the balance on the bill at the end of the month or is based on the spending for the whole month?
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Mar 6, 2019 06:17
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Though you claim it's your debt to income ratio, that does not sound likely in your scenario. You are not dinged for paying off your credit card balances in full every month I can assure you. It sounds like the issue is that as a percentage of your available credit, you are close to maxing it out - this will ding your credit. Of the credit card(s) that you own, do you commonly utilize more than 50% of available credit? If so, you should apply for additional credit card(s) or a HELOC to lower your ratio of available credit vs utilized. The concern as a lender is that if you went through some hardship you would quickly max out your available credit and be in a bind. What you are describing where you add in the credit cards and it moves your DTI ratio from 27% to 50% does not make sense to me. When calculating DTI you only use the monthly payments required by those lenders. Let me give you an example to illustrate. Loan balance on credit cards: $3,000 Credit card interest rate: 30% Annual Income= $120,000 therefore Monthly Income = $10,000 Monthly Payments: House: $2000 Cars: $2000 DTI calculation: $4,000/10,000 = 40% DTI CC's are calculated based on minimum monthly payment, as are the other loans, but they are not an Installment loan of a set amount. The general minimum payment is 2% of the total balance + interest. 2% of card balance = $60 + (3000 * 0.30 / 12 months) = $75 (interest) for a monthly minimum payment of $135 New DTI calculation: House: $2000 Cars: $2000 CC: $135 $4135 / 10,000 = 41% DTI Edit: updated CC interest rate to 30% just to illustrate how little it matters in your DTI calculation. For clarity, I am using simple interest calculation rather than compounding as it should be so numbers are not 100% accurate but close enough for back of the napkin math. ifuckedjesus fucked around with this message at 16:51 on Mar 6, 2019 |
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Mar 6, 2019 16:31
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Are you floating balances from month to month? Not accruing interest but essentially not paying the cards to zero every month? This seems weird that it would mess with DTI if you truly are paying to zero every month. Asking for credit line increases as well as maybe just moving your purchasing to debit for a few months both seem like reasonable solutions. That bring said, I feel like there is something else going on that is causing you issue.
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Mar 6, 2019 20:54
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ifuckedjesus posted:Of the credit card(s) that you own, do you commonly utilize more than 50% of available credit? If so, you should apply for additional credit card(s) or a HELOC to lower your ratio of available credit vs utilized. The concern as a lender is that if you went through some hardship you would quickly max out your available credit and be in a bind. It has to be this, our monthly credit card average(paid off in full every single month) is routinely 55-70% of our total credit line. We don't ever float balances or need more than that. The last time either one of us floated a balance was 2004 and if we ever needed more than that I have access to what amounts to two years of income and our house has 60% equity. So you are saying all the times I've been asked to increase my available credit I should have taken them up on that? And just to clarify, here's the list of detrimental factors * Proportion of Balances to Credit Limits Too High (think this is it) * Amount owed on Revolving Accounts is Too high. (How is this different than the previous one?) * Too Many inquiries in the past 12 months. (We had a few house bids that we lost on and had credit pulled a total of 4 times in the past year. I hate that this dings us. ) * length of time accounts have been established. (Weird, last credit we opened was two cars in mid 2017). Also, I went through my monthly spend for the past 12 months and confirmed my numbers * 21% of gross income for real estate * 6.5% of gross income for vehicles * average of 34% of gross income for credit cards. This spikes at holiday times but nothing we can't pay off. There is nothing else that I can think of going on other than a portion of the real estate is for some land we bought for retirement(i.e. not primary residence) So this monthly average is 61% of debt to income ratio which seems decent since I never float balances. I guess its time to double my credit line on both my cards. I hate using my debit card for purchases since a) I dont get CC benefits and b) security risk is too high. Might as well get the credit check dings out of the way now. Thanks for the responses. I do have to ask, if we paid off the balances ahead of the actual bills coming in so the end of the month is less than 5% of credit line would that have the intended effect of the balance proportion being too high?
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Mar 7, 2019 08:49
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spoon daddy posted:It has to be this, our monthly credit card average(paid off in full every single month) is routinely 55-70% of our total credit line. We don't ever float balances or need more than that. The last time either one of us floated a balance was 2004 and if we ever needed more than that I have access to what amounts to two years of income and our house has 60% equity. Again - you are not correctly calculating DTI. The credit card portion of your DTI calculation is simply the minimum payment on your bill. Your true DTI is probably closer to 30-35%. You do not appear to be overly leveraged. For people that can "handle" having available credit (I.E. they don't spend it if they've got it) you should absolutely try to obtain as much as possible. You can't predict if your household will ever encounter hardship and you won't be able to obtain credit at that point if and when it does occur. With your strong equity position I would also suggest you obtain a HELOC as they are generally free and would be the easiest path to quickly increase your ratio of available credit. As far as the detrimental factors: they always have some listed. My day job is a commercial lender and even people with 800+ FICO's have something listed there. The balances are reported on a snapshot basis so if you were to pull your credit report the day after you paid the CC bill it would show a current balance of 0. However, for each trade line listed it also shows maximum available balance AS WELL as highest balance utilized on that card within the last 12 months. My point is that it will take a full 12 months to fully "reset". ifuckedjesus fucked around with this message at 04:12 on Mar 8, 2019 |
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Mar 8, 2019 03:53
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ifuckedjesus posted:Again - you are not correctly calculating DTI. The credit card portion of your DTI calculation is simply the minimum payment on your bill. Your true DTI is probably closer to 30-35%. You do not appear to be overly leveraged. Brain farted there. I missed that. quote:The balances are reported on a snapshot basis so if you were to pull your credit report the day after you paid the CC bill it would show a current balance of 0. However, for each trade line listed it also shows maximum available balance AS WELL as highest balance utilized on that card within the last 12 months. My point is that it will take a full 12 months to fully "reset". Ok, that's great to know about the 12 month reset for highest balance. As far as getting more credit, definitely will do so as soon as the new house is purchased as our current lender told us not to ask for more credit before close.
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Mar 8, 2019 07:21
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ifuckedjesus posted:Again - you are not correctly calculating DTI. The credit card portion of your DTI calculation is simply the minimum payment on your bill. Your true DTI is probably closer to 30-35%. You do not appear to be overly leveraged. I've only seen "highest balance" on installment loans, never on credit cards. Anytime I check my credit report, the balance and credit line for my cards are listed as whatever was last reported by that card company; which is usually when they issue the statement. It certainly is possible that the "highest balance" exists for revolving debt too and it just isn't available to be seen on the consumer side. With that said, you can still massively improve your score by reducing what balance gets reported. For this the OP's wife's suggestion of paying it all off before statement closing is a good one. If you do so, then the credit card company will report that statement balance (which should be $0) and your utilization will go down with it; increasing your score. If you are looking for a new house, getting your credit card limits increased is probably a bad idea. One thing that is looked at is what the total amount of credit available to you is, and they have caps for what they will allow to be extended based on your profile. So increasing your credit limits could potentially take away space that you want to use for the new mortgage.
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Mar 25, 2019 18:02
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Raldikuk posted:I've only seen "highest balance" on installment loans, never on credit cards. Anytime I check my credit report, the balance and credit line for my cards are listed as whatever was last reported by that card company; which is usually when they issue the statement. They most definitely do report highest balance on revolving debt. As stated, it's based on last 12 months of activity. I don't know what you mean isn't available to be seen on the consumer side - businesses don't have credit scores. While I'm currently a commercial lender I didn't start as one, I did consumer lending as a personal banker and branch manager for years prior to working my way up to this position. The part about raising your credit limits and buying a house is information coming straight out of your butt. The lender doesn't want you to apply for additional credit DURING the underwriting process in the event it will change your debt service coverage, but before/after they don't care. These "caps" you refer to don't exist, and if they did, they would simply make you payoff/close your card(s) as a closing requirement. 99% of Mortgages are sold to Fanny/Freddy - as long as they fit within their approval framework the lender could care less.
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Mar 25, 2019 20:30
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ifuckedjesus posted:They most definitely do report highest balance on revolving debt. As stated, it's based on last 12 months of activity. I don't know what you mean isn't available to be seen on the consumer side - businesses don't have credit scores. While I'm currently a commercial lender I didn't start as one, I did consumer lending as a personal banker and branch manager for years prior to working my way up to this position. I mean when I pull my credit report no such item exists for any of my revolving accounts. Maybe lenders can see it, but that seems odd given that it isn't visible on the consumer side. And I know for a fact utilization is specifically based off of most recently reported statement balance. So at the very least getting the reported balance to zero will significantly impact their score (utilization makes up about a third of a person's score) even if there is some hidden highest balance item reported elsewhere (which if there is please let me know how to find it I would love to see what is reported for mine). Your comment about the underwriter caring seems to miss what I meant. Certainly it isn't fraud or anything the underwriter would red flag, but the total amount of financing at your immediate disposal absolutely does affect the amount of new credit you would qualify for. So raising your limits can potentially lower the max mortgage you qualify for. Given what the OP has said I don't think this will be a problem and they're probably looking for a better rate. In which case getting the revolving accounts to report zero by simply paying it off prior to the statement close would do a lot of good. Edit: Here is a source for the utilization claim of mine. You can go to each credit bureaus' FAQ and find similar info. Raldikuk fucked around with this message at 21:21 on Mar 25, 2019 |
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Mar 25, 2019 21:12
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This quote: Raldikuk posted:If you are looking for a new house, getting your credit card limits increased is probably a bad idea. One thing that is looked at is what the total amount of credit available to you is, and they have caps for what they will allow to be extended based on your profile. So increasing your credit limits could potentially take away space that you want to use for the new mortgage. 1. Lender says "OH NO they have too many credit cards with available balances, guess we just decline their mortgage application - better luck next time." 2. Lender says "OH NO they have too many credit cards with available balances, we just notify them and tell them they have to sign a payoff/closure letter on some of these cards at their mortgage loan closing to proceed." The answer is option 2. I have demonstrated why this is not "a bad idea" in either case. Raldikuk posted:I mean when I pull my credit report no such item exists for any of my revolving accounts. Maybe lenders can see it, but that seems odd given that it isn't visible on the consumer side. And I know for a fact utilization is specifically based off of most recently reported statement balance. So at the very least getting the reported balance to zero will significantly impact their score (utilization makes up about a third of a person's score) even if there is some hidden highest balance item reported elsewhere (which if there is please let me know how to find it I would love to see what is reported for mine). For the 3rd time, lenders CAN see highest balance in the last 12 months on your revolving accounts. Raldikuk posted:Your comment about the underwriter caring seems to miss what I meant. Certainly it isn't fraud or anything the underwriter would red flag, but the total amount of financing at your immediate disposal absolutely does affect the amount of new credit you would qualify for. So raising your limits can potentially lower the max mortgage you qualify for. Given what the OP has said I don't think this will be a problem and they're probably looking for a better rate. Did you not read my first response to the thread? Utilization matters, but you are right for the wrong reason. Here's the reason why utilization matters: "It sounds like the issue is that as a percentage of your available credit, you are close to maxing it out - this will ding your credit. Of the credit card(s) that you own, do you commonly utilize more than 50% of available credit? If so, you should apply for additional credit card(s) or a HELOC to lower your ratio of available credit vs utilized. The concern as a lender is that if you went through some hardship you would quickly max out your available credit and be in a bind." Raldikuk posted:In which case getting the revolving accounts to report zero by simply paying it off prior to the statement close would do a lot of good. What are you even talking about in this quote? Do you think your FICO score swings drastically during every month as you build up balances before being paid? I have no idea what point you are trying to make, but it's likely nonsense. Lenders rely on trends and historical information, they are the most predictive indicators of repayment. Unsurprisingly, repayment history is also the primary factor in your FICO score. What is your background and/or qualifications? Please exit this thread, you're embarrassing yourself.
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Mar 26, 2019 00:25
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Raldikuk posted:I mean when I pull my credit report no such item exists for any of my revolving accounts. Maybe lenders can see it, but that seems odd given that it isn't visible on the consumer side. And I know for a fact utilization is specifically based off of most recently reported statement balance. So at the very least getting the reported balance to zero will significantly impact their score (utilization makes up about a third of a person's score) even if there is some hidden highest balance item reported elsewhere (which if there is please let me know how to find it I would love to see what is reported for mine). You're looking at resources about your credit score, which is a single number that's supposed to summarize your credit report. All the major credit score models (FICO, Vantage, etc) don't take utilization history into account when they distill your report down to a number. But, the credit bureaus still keep information about your past balances and payments. If a lender is going through your credit report by hand - say, because they're getting ready to issue you a large loan - then they can see more detail including past high balances. Experian has a sample full credit report where you can see the "high balance" field here: https://www.experian.com/blogs/ask-experian/credit-education/report-basics/understanding-your-experian-credit-report/ ifuckedjesus posted:What are you even talking about in this quote? Do you think your FICO score swings drastically during every month as you build up balances before being paid? I have no idea what point you are trying to make, but it's likely nonsense. Lenders rely on trends and historical information, they are the most predictive indicators of repayment. Unsurprisingly, repayment history is also the primary factor in your FICO score. Credit reporting agencies get their information on a per-statement basis, but most credit card companies will let you pay more frequently than once per statement. Say that my statements start on the first of the month, and end on the last day of the month. I have a card with a credit limit of $10,000, and zero dollars on the card to start with. On the 2nd, I buy some fancy thing that costs $2,000. I don't make any other purchases for the month. On the 10th, I make an early payment of $1,500. On the 31st, my statement closes. The bank will report that I have a statement balance of $500, and that's what will go into calculating utilization, onto my credit report, and so on. My credit score will probably be a tiny bit higher. Anyone outside the bank that issued the credit card almost certainly won't see the highest point the balance hit during the month. It's generally just a bit of trivia, but for people who are about to sign papers on a medium-to-large loan, it can help eke out the last few FICO points that might tip them towards a better interest rate.
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Mar 26, 2019 01:39
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Space Gopher posted:Credit reporting agencies get their information on a per-statement basis, but most credit card companies will let you pay more frequently than once per statement. Say that my statements start on the first of the month, and end on the last day of the month. I have a card with a credit limit of $10,000, and zero dollars on the card to start with. On the 2nd, I buy some fancy thing that costs $2,000. I don't make any other purchases for the month. On the 10th, I make an early payment of $1,500. On the 31st, my statement closes. Highly doubt your FICO score changes in the slightest. Your DTI will be marginally different, but as shown above even a CC carrying a balance of $10k will only affect your monthly debt service by $135/m. (10,000 / 5 = 2000) 1/5th of that is $27/m. If you get declined for a loan because you can't afford an extra $27/m then you just plain old can't afford it and the lender is doing you a favor.
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Mar 26, 2019 01:57
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One quick pseudo-related question. Regarding opening a new credit card account affecting your credit rating... I was pegged at 850 for about 2 years. I opened up a new CC (for the cash back and 500 funbux if I met certain requirements). My score instantly dropped to 752 and has eeked back up to 758 over 10 months. Discover lets you do a free FICO check whenever you want (although the data is only updated monthly), and the only contributing factor is that I have one or more accounts that are too new. Any idea how long this takes to fade away? Thanks.
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Apr 28, 2019 17:00
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Your FICO score will absolutely be affected by your utilization on revolving accounts. And you stories are reporting what the balance is at the time that they report to the bureau for that month or quarter. If your utilization is over about 30% of your credit line, this can affect your score. Since you play them off every month, you should probably just quit using them a while until you buy your house.
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Apr 29, 2019 17:58
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DC to Daylight posted:One quick pseudo-related question. Regarding opening a new credit card account affecting your credit rating... I was pegged at 850 for about 2 years. I opened up a new CC (for the cash back and 500 funbux if I met certain requirements). My score instantly dropped to 752 and has eeked back up to 758 over 10 months. Discover lets you do a free FICO check whenever you want (although the data is only updated monthly), and the only contributing factor is that I have one or more accounts that are too new. Any idea how long this takes to fade away? Thanks. It's super unlikely you were ever actually an 850 FICO. That's a perfect score, and I've never actually seen one in my 10+ years of lending. That said - this new CC, I assume you have to spend X amount to get the bonus - did that nearly tap it out? That is most likely thing that happened. In any case, 750+ is A tier credit. It's unlikely you'll actually see any real world benefit from an increased score above that anyhow.
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May 15, 2019 20:26
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Unless you are a veteran, then the absolute highest DtI you can finance a home with will be 57%(Probably less after recent changes) - and that's assuming all other factors are perfect. You can have the lender go line by line and see what paying off each card will do to your DtI, if they find a card or combination of cards that, after being paid off, will lower your DtI then you can proceed with the lower DtI and you will just have to provide a payoff letter for the card by closing. Also, if you plan to sell your current home, then you can schedule things in a way that also removes the current house from your qualifying liabilities. Depending on how soon you want to purchase, don't open any new lines of credit. The 45 day shopping window only applies to Mortgage inquiries. Any unrelated inquiries, say for a new credit card, will lower your credit score and jeopardize your financing. I do Mortgages in 10 states, so feel free to PM me if you have any specific questions.
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May 15, 2019 21:23
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You make it sound like it's difficult to buy a house. The DTI you're calculating is on Gross Income. 57% of Gross is like 70% Net. If anything, mortgage lending standards are still far too lax
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May 16, 2019 14:06
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ifuckedjesus posted:You make it sound like it's difficult to buy a house. The DTI you're calculating is on Gross Income. 57% of Gross is like 70% Net. If anything, mortgage lending standards are still far too lax Well, DtI is always based on gross for mortgage purposes, and most people will not qualify with a DtI above 50%. But I do agree, guidelines should be stricter. You shouldn't be able to finance a 4-unit with a first time home buyer program. For what it's worth, FHA cracked down in a big way 2 weeks ago. shit is weak fucked around with this message at 18:00 on May 16, 2019 |
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May 16, 2019 17:57
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