FICO score simulator paves path to approval

Bioseh Ogbechie was eyeing a newly constructed downtown Los Angeles high-rise condominium. The mortgage program that could make this purchase happen required a minimum 660 middle FICO score. Ogbechie's stood at 610.

With a “what if” automated credit score simulator providing specific direction, Ogbechie (a client of mine) raised that FICO score to 698, an 88-point boost. His loan subsequently was approved.

“I didn't know the process was available. I appreciate being able to see and know what to do quickly,” he told me.” This was the difference between getting my loan or not.”

So what changed? Ogbechie agreed to be removed as an authorized user on someone else's credit card reporting a 60-day-late payment. He also paid down some credit card debt. The paper trail proof of these completed borrower tasks was provided to my company's credit agency, Advantage Credit. Then we pulled another credit report named Rapid Rescore. Bingo.

The tools used to help borrowers to reach their targeted middle FICO scores are called “what if” simulators and “way-finder” and are provided by a company named Credit Expert, according to Mindy Leisure, director of rescoring services at Advantage Credit.

“We have an 85 to 90% success rate on rescoring — getting what they need,” Leisure said. This does not mean every borrower's score is going to get boosted right away or at all. Every once in a while we have a long-term credit report that takes a while.”

The service, considered a credit investigation, is free of charge for borrowers. Federal law prohibits borrowers from paying for credit investigation (also known as a rescoring process). Generally, it costs $35 or more per account — and per bureau — to rescore a borrower.

For example, if a collection was deleted from all three credit bureaus (Experian, Equifax and Tran

sunion) it would cost the mortgage lender $105. In my experience, a plurality of accounts is needed for most borrowers to get them to the desired FICO score.

Rescoring can be valuable. Fannie Mae and Freddie Mac require a minimum 620 middle FICO for loan approval. So one point short at 619 can mean the difference between approval and denial.

To be very clear, the “what if” simulator can do things like assess and potentially eliminate late payments, for example, when the borrower knows he or she can get a confirmation letter from the creditor. The “way-finder” option can't make those types of assumptions. It's limited to the exact data in the credit report without making any outside assumptions. For example, pay down a credit card to $3,000 from $6,000 and then you'll likely get a score of X.

More broadly, mortgages are priced on a matrix of the lowest middle FICO score and loan to value. Home loan point cost pricing is in 19-point increments. For, example, 620-639, 640-659, 660679, etc.

How does middle FICO scoring work? For example, a borrower has scores of 740, 660 and 660. The loan program requires a 700 middle score for its loan approval and best pricing. We can see what the likely results will be using either way-finder or what-if simulator. If we can get both 660 scores to land at 700, but we really only need one of the two 660 scores raised to 700, then we'll just rescore one of the bureaus for that account. Mostly because of the inherent cost to the lender. The true beauty of this system is you largely can see the exact results before you spend the time, energy and money.

Here's a practical example: Let's say you put 25% down on a Fannie loan amount of $600,000 on a 30-year fixed. Your rate is 5.25%, with 1 point or a $6,000 cost as your middle FICO score was 685. After abiding by the FICO simulator suggestions, and after the rapid rescoring process, your middle FICO jumped to 745. That means your cost for the 5.25% rate dropped to zero points, saving you $6,000.

Ask early on about the rescoring process. Will your lender help improve your score? It's the lender's dime, not yours.

And will your lender recognize rescoring when it comes to the loan approval and or improved pricing? “Some lenders don't allow for rescoring,” Leisure said.

FICO credit scoring (300-850 are the ranges) has been around for more than two decades, according to John Ulzheimer, founder of CreditExpertWitness.com. “Inquiries affect your FICO anywhere from zero to 4 or 5 points,” he said.

Ulzheimer thinks rapid rescoring is a good tool if the supporting documentation is done in an authentic manner. In other words, don't get involved in FICO scoring fraud.

Years ago, a sales rep came to my office claiming she was a credit repair expert and could do miracles for my clients when it came to improved credit scores and more loan approvals. She offered an example of a derogatory credit (repossession via Toyota) item she was able to get deleted for a client. When I asked how she was able to do that, she said “we created their letterhead and wrote a letter.”

Over my 35-year career, I rarely have heard anything positive from clients that have gone to credit repair companies. Typically, the borrowers complained they spent hundreds of dollars and accomplished nothing. I did have exactly one credit repair person I recommended who was good at negotiating settlements with collection companies. She eventually left the business because it was too hard.

Your mortgage loan originator may be able to accomplish a lot to boost your middle FICO score for you in short order and free of charge.

Each rescore creates a new inquiry on your credit report, but if you do this in short order, it's not going to further affect your credit scores, Leisure said.

“As long as you repull credit within a 45-day shopping window,” she said. “Unless you applied for five new credit cards, then you are hosing yourself.

“There is no shopping window for cards.”

Something else to note: As of July 1, medical collections with zero balances, however they got to zero, will be eliminated from your credit report, according to Ulzheimer. Freddie Mac rate news:

The 30-year fixed-rate averaged 5.7%, 11 basis points lower than the previous week. The 15-year fixed-rate averaged 4.83%, 9 basis points lower than the previous week.

The Mortgage Bankers Association reported a .7% increase in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year's payment was $1,034 less than last week's payment of $3,756.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: a 30year FHA at 4.875%, a 15-year conventional at 4.625%, a 30-year conventional at 5.375%, a 15-year conventional high balance ($647,201 to $970,800) at 4.99%, a 30-year high balance conventional at 5.5% and a jumbo 30-year purchase, fixed at 5.375%.

Note: The 30-year FHA conforming loan is limited to loans of $562,350 in the Inland Empire and $647,200 in Los Angeles and Orange counties. Eye-catcher loan program of the week: a 30year jumbo purchase mortgage, locked for the first five years at 4.25% with, a 0.75-point cost.