Numbers Count: Mortgages & average FICO scores
Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.The numbers: The average FICO credit score on closed mortgage loans in September fell to 723, the lowest score in at least four years, according to the latest edition of Ellie Mae’s September Origination Insight Report, which is based on data from Ellie Mae’s mortgage management software. The average FICO score was down from 726 a year ago and was the lowest since Ellie Mae began reporting data in August 2011. What counts: Lower average FICO credit scores on approved mortgages may be a sign it is getting somewhat easier to get a home loan. But remember credit scores are not the only factor in a lending decision.
In making a decision to approve a mortgage, lenders look at numerous factors, including the applicant’s income, size of the down payment, length of time at job, and a FICO credit score. Remember that your credit score is important, but it is not by any means the sole factor in whether you qualify for a mortgage or what your interest rate may be.
I believe that more important than raising your credit score is building good credit habits to help you establish a solid credit foundation. By managing your overall financial well-being — including using credit responsibly — you’ll likely increase the odds of having and maintaining a stronger credit score. Here are a few pillars of a solid financial foundation:
- Pay your bills on time. Late payments can lower your credit score.
- Pay down debt. Your total amount owed is an important factor in your credit score.
- Avoid excessive credit applications with multiple lenders, which can lower your credit score.
- Once you have a credit card, go ahead and leave it open even if you don’t use it. The length of your credit history is also a factor in your credit score.
- Maintain a strong employment record.
- Have a savings plan to improve your overall financial well-being.
- Borrow only what you can afford.