FICO Scores are Overrated

So, you have a great FICO score and are ready to start flaunting it to lenders. You sit back and prepare to be entertained as they drool and stampede one another just for a chance to loan you money that you will assuredly pay back.

NOT SO FAST!

Have you taken the time to look at what is in your credit report? In today's credit environment, your FICO score has become almost insignificant. The days of loose money and automatic underwriting are over. Instead of a computer program judging your merits on this single factor called a FICO score, you now have a living breathing underwriter looking over your credit report line-by-line to spot any potential weaknesses in your credit profile.

Why have we moved away from the high-tech underwriting software and toward old fashioned manual underwriting? Because it turned out that the software programs were using overly optimistic models in their evaluations and as a result, the portfolios of lenders using these garbage models grossly underperformed. In other words....The software programs were wrong!

What does a flesh and blood underwriter look for in a manual review of your credit report?

• How much credit card debt do you have? $40k is a rough maximum limit that underwriters will accept. This often times can be overcome by highlighting strengths in other aspects of your financial situation.
• How many open trade lines do you have? Underwriters don't like seeing less than 5 open trade lines on your credit report. The less information being reported to the credit bureaus, the more easily your FICO score can be skewed. When you have less than 5 open trade lines on your report, your FICO score becomes insignificant.
• What payments have you been late on? Late payments on mortgages or auto loans are larger red flags than late payments on credit cards. Usually, when people get in financial trouble and can't pay all of their bills, they will pay the mortgage first and use whatever money they have left to pay their other bills. Auto payments are usually paid after the mortgage. An underwriter will assume that when a borrower chooses not to make their mortgage payment first that they were at one point so strapped for cash that they couldn't pay ANY of their bills. Underwriters will view multiple late mortgage and auto payments as a sign of impending bankruptcy.
• Do you own a home? If so, do you have equity in your home? Traditionally, home ownership is viewed as a sign of financial strength. This is still true if you have equity in your home. The logic is that if you get into trouble you can re-finance or sell your property in order to cash out some equity as a last resort before declaring bankruptcy. If you are maxed out on your mortgages and HELOC's, it is a sign that you owe more on your home(s) than the fair market value of the property(ies). In that situation, home ownership will be viewed as a weakness rather than a strength.

An equipment leasing professional will be able to decipher your credit report and point out your strengths and weaknesses before a manual review by an underwriter. You should always be able to provide logical explanations for your weaknesses before the approval process.

DON"T LET THE UNDERWRITER MAKE HIS OWN ASSUMPTIONS ABOUT YOUR FINANCIAL CONDITION.

Your Dimension Funding representative will present underwriters with explanations about your weaknesses and highlight your strengths before any underwriter picks apart your credit report. In this day and age it is not enough to simply have a good FICO score. Every credit profile is different, and it takes a trained eye to spot the red flags and strengths of your financial profile.

Eric Johnson
Account Manager
Dimension Funding, LLC
Dimensionfunding.com
Phone: 949-608-2247
ejohnson@dimensionfunding.com