I Don't Get Credit Scoring

[Ian Moone]

Just the act of inquiring about a loan lowers your credit score!.
The number of institutions & how recently they checked on your credit worthiness affects your score to lower it!.
So the act of "shopping loans" can and does, drastically lower your score - even tho you took out no loans.
Mine stays at 801 - never moves, coz I don't shop for loans and don't take out credit - have pretty much zero debts, and own all assets including the house, truck, car, m/bike, and boat etc.
In the past I have borrowed large amounts (property development - land re-zonings & sub divisions etc) and paid them all back within 1 - 2 years at completion of the project.
So these institutions send me letters thanking me for my past business and suggesting that if I'd ever like more loans to just contact them and it won't be an issue!.
These days I make a point of not doing that!
What they REALLY want is to get their hands on the title deed to my property under mortgage again - which I will never do again as long as I live!
Yes interest rates are at world historical lows, BUT - the flip side is the world economy's are about to also collapse!.
Here in oz - the 4 major banks (All of whom have recently reported massive multi billion annual profits) just raised interest rates 25 basis points @ the same time that the federal reserve kept rates the same as they have been now for a couple years! The Fed is taking about dropping the prime rate 25 basis points!
The banks put there mortgage rates up .25% because due to the poor economy the Feds increased their provisions for bad debt holdings, so they each have to raise more capital in a hurry, since their lendings are all way over leveraged and the economy's about to tank.
I remember the interest rate hikes of the early 1980's (they went to 13% plus here back then). Then I remember the Interest Rate hikes of the late 1990's when they went to 22%
Bin there, done that, & got the T shirt and stubby holder to prove it & ain't in any great hurry to go back!.
Our economy's tanking and fast -no job security left in anything!
People just aren't game to borrow in a climate like this.
House auction clearance rates are down. Median House price has dropped 4% this year & the previous one!
Rental vacany rates are large & growing thus rental returns are dropping ans people move to secure lower rents in better property's.
The low rental returns combined with negative capital gains, and the low return on invested capital - along with the high risks..& next to no negative gearing fo the difference between interest and rental return for tax purposes, all mean that negative gearing opportunities have all but evaporated!.
When all you can get out of an investment property is capital loss and a little depreciation annually on fixtures and fittings (5%) as a tax break its just not worth investing in property at the moment.
Here the media house price (4bed x 2bath) is around $~450K
The rental return will cover a $300K mortgage!
So with no tax breaks and negative capital gain... when buying that $450K investment property - all your doing is subsidizing your tenants lifestyle to the tune of $150... i.e. investing in a property that's going backwards in value & collecting enough rent to service 2/3rds of the mortgage!
All of our property boom was resources industry backed... and China's stopped buying our natural resources!
So the artificial demand for property as a negative gearing tax break for the Fly In Fly Out Miners on $220K a year + salaries has collapsed.
Many of them are out of work and upside down in their loans on their investment property's & facing foreclosure on their own home and their investment property.
So they put the investment rental on the market while prices are falling and no ones buying! The tenants get sick and tired of "moving out for the day" for the realtor to bring prospective purchasers (i.e. sticky beaks and possible would be thieves) thru, (to case the joint) & run "home open inspections" on weekends, so the tenant doesn't renew the lease and finds a more stable property to rent, leaving the unemployed investor now upside down in both loans and with zero rental income.. which is just speeding up the bank fore-closure rates.

It's a tough time to get housing loans, the 4 big banks here are seeking 30% deposits (which on median $~450K homes) is a big chunk of change for first home owners to find!.

First home owners (even with a govt $10k grant) can't pay rent & save enough to get into the market place!

Investors are OUT of the market.
First Home Owners are OUT of the market!
The ONLY buyers IN THE MARKET (which is a buyers market if your game) are overseas Chinese buyers mostly now!.
There's not enough of them due to the danger of exchange rate variations on foreign loans - so the markets "correcting" back to levels we haven't seen since the great depression of the late 1920's and early 1930's.
Its conditions not seen in the market place in basically ~100 years!
That's the reality of the new fiscal paradigm!
$18 trillion in un-servicable US foreign debt, has the whole world spooked.
There has to come a day of reckoning and most (wise) people are positioning themselves for that - hedging their bets & retiring debt, and trying to be liquid for when the crash hits and there are legitimate bargains to be had!.
There's plenty more to worry about, than just your credit score.
The more you show the bank you don't need or want their $ - the more they will want to lend to you!.
The more desperate you are for their loan, the less they want to loan it to you - they only want to loan to people who don't need it at the moment!.
All the rules have changed, these are conditions your great grand parents knew how to deal with, during the great depression, they buried their silver dollars and gold before the gold confiscation act was introduced (by FDR?).
They had a saying 100 years ago.
"Neither a borrower nor a lender be".
Probably time to bone up on some history.
YMMV (Your mileage may vary).

[Rich Riddle]

Ian,

In the United States, it's different than Australia apparently. If you simply "inquire" about a loan it has not bearing on your credit. If you apply for one, they perform a "hard pull" that does impact credit at a low level (about two points). If you are shopping for mortgages and apply for more than one mortgage like you do when dealing with a mortgage broker, all those "hard pulls" or "hard inquiries" are bundled into one.

Our prices are much more reasonable than yours for homes. For conventional loans, we typically have to put up 20% on a mortgage but a few programs exist to lower that number. Most of those programs exist through the government, such as VA and VHA. One problem we had with the mortgage crisis was that folks with little equity walked away from homes. If you look at the data, few people who put down 20% or more on their houses walked away from them. The tougher regulations here are a pain, without a doubt; but they will likely have fewer defaults. We close in about 35 minutes. The paperwork is unbelievable.

[Rich Engelhardt]

All the rules have changed, these are conditions your great grand parents knew how to deal with, during the great depression, they buried their silver dollars and gold before the gold confiscation act was introduced (by FDR?)

Yep - it was FDR.

[Greg R Bradley]

Greg, thank you for that very detailed explanation! I'm beginning to understand some of this. To your 10 points:

1. More than 5 open CC. - Check
1a. Got your first CC 20+ years ago. - Check
2. Got your first installment loan 20+ years ago. - Check
3. Not applied for any loans in the last year. I only applied for a recent mortgage loan which is in limbo now
4. No new loans in the last 6-12 months. - Check
5. Not too many loans with balances. Most open CC should be zero reporting but not ALL. Right now all CCs are only reporting whatever I charged since the last payment in full was made
6. Very low balance on loans other than a mortgage. - Check
7. Never missed a payment (actually lates drop off around 8 years so no lates on your reports) I've got one late mortgage payment from 6-1/2 years ago the lender said I got dinged on. And a few late CC payments that slipped through the cracks which were paid as soon as I found I missed it.
8. No loans past due (goes along with no lates but this is additional info for people with lates) Not in the last 12 months or so, maybe longer.
9. Low amount owed on CC as compared to limits. - Check
10. No BK, Liens, Foreclosure, Repo, Collections. - Check

FWIW, the credit info I'm using comes from Discover. It showed me at 739 just around the time I sold the house. After I sold the house, I paid off everything. Then I applied for a new mortgage. Now it's 679. Seems a bit harsh to me.

Re:
#5 A CCC generates a statement and reports THAT amount to the CRAs promptly, generally the next day. The CRAs update their reports, Experian in minutes, Equifax and Transunion in 2-5 days.

#7 A 6.5 year late I'm assuming means a 30 day late. That means you didn't pay the payment on time, a new statement was generated showing the late and a late charge and then THAT statement was not paid by the due date. That payment would be two months payment, the late charge, and any additional interest they were allowed to charge. That is the minimum "late" where they are allowed to report it to the CRA as "late". That would have had a large effect when new but now should have almost no effect now.

CC have the same rules so you have to be late, get charged a late charge and then not pay it until the NEXT due date. To avoid anything that hits your credit report you would only have to pay the old minimum, the late, and the current minimum by the due date. A 60-day late means it went the next monthly cycle without paying the three minimums and the two late charges. It takes a HUGE step up in damage if it goes another month and shows 90-day late. It gets worse again at 120-days late. From your description, it sounds unlikely that any went late enough to show on your report.

#8 means a loan that is currently past due. Loans that WERE past due appear in the "Lates" section. A loan that is currently overdue is severly damaging.

The 739 from Discover is a FICO 8 score from ONE CRA. I think it is TU, which is usually my highest score. The 679 for a Mortgage is from a Tri-Merge report that includes a separate report and score from each of the three CRAs. It is FICO 04 and is the lowest of the three scores. It would be very easy to believe that one could be 739 and the other 679 at the same time with the same information. I'm pulling from memory but I think I recall that FICO 8 completely ignores ONE small derogatory from certain categories. I think it even ignores a collection if it is under $100 and that would be devastating to earlier FICO versions.

It has been a few years since I dealt with this regularly and kept up. I think the current reports from MyFICO.com show your scores for a variety of different FICO scores.

Edit to add: I think it might help to add on to the info from Rich just above.

Multiple Hard Inquiries of the same type during a short period will show as separate Inquiries but be counted as ONE. The period varies according to which FICO version. I recall they vary from 30-90 days. Additionally, it is important to know that you get a slight hit on your score going from 0 Inq to 1 or 2 Inq. The next step is 3-4 Inq, and the next is more than 4. They can only hurt so much and don't hurt a lot after a couple months. They show for 2 years but only affect you score for 1. The biggest effect is going from 0 to 1 or 2.

So don't worry about applying with 5 different mortgage companies for the same mortgage. It sounds like you might have a delay but if that only takes you from 1 to 2 it still shouldn't matter.