How long does it take for your credit score to change.? I'm trying to payoff debt in order to get a home

Asked by MGM, Palmdale, CA Fri Feb 27, 2009

loan. If I payoff the debt today when should I expect my credit score
to change and how many points would it go up?

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Steven Ornel…, Agent, Fremont, CA
Fri Feb 27, 2009
Hi Mgm, the algorithms for FICO scoring are not static and move to rules that change as your credit profile changes. Fair Issac, the creators of the "predictive analytics" credit scoring model do not want anyone to know how it "ticks" so it is not possible to "engineer" one's score.

There are some basic percentage breakdowns that make up a score, which you can find here but again, these do change as one's credit profile changes. Read the "Top 10 Do's & Don'ts" contained in the link above.

There's a "Rapid Rescore" capability (ask your mortgage broker) that allows you to update all three credit agencies ASAP but this will cost you upwards of $150+, depending on how many accounts you are updating. You can then immediately pull your credit again. Other than this, most accounts are updated the beginning of each month.

I have no clue what your score is right now, but if you have a mid-score of 620 right now you can buy using an FHA loan, which has some interesting benefits:

1) 3.5% minimum Downpayment.
2) Up to a 6% Seller Credit allowed for buyer's closing costs and Seller concessions (non-FHA max is 3%).
3) FHA requires that identified safety/health issues be corrected.
4) FHA allows up to $8,000 in financed energy efficient upgrades without negatively affecting borrower's debt-to-income ratio.
5) Cash reserves not required.
6) Upfront Mortgage Insurance may be financed.
7) Non-occupying co-borrowers are allowed.
8) High and flexible qualifying ratios.
9) FHA loans are assumable.
10) No pre-payment penalties.
11) Will consider "compensating factors" in determining whether a loan should be granted.

Perhaps the only negative: While FHA only requires a 3.5% down payment this means you will be financing 96.5% of the sales price and you will have to pay Mortgage Insurance for a MINIMUM of 5 years, or until you have paid your original LOAN AMOUNT down to 78% (not that the loan amount is 80% of current market value, which is typical for non-FHA MI removal). This "78% or 5-year Rule" before Mortgage insurance can be terminated is covered here:…

Best, Steve
2 votes
Rhonda Burge…, , Smyrna, TN
Fri Feb 27, 2009
Hi Mgm. The main thing that will cause your score to go up is when the new balance is reported by the creditor to the credit bureaus. There is normally anywhere from a 30 to 90 day lag in the reporting. For example, if you pay off a debt in February, it may not even post to the creditors accounting system until March when the new bill cycle begins. Then it would probably be April or even May before the creditor reports the zero balance to the bureau, depending on if the creditor reports every month. Your creditor may only report quarterly so it may be even longer before the true balance is reported and it adjusts your score.

There is no way to tell how many points your score will go up. Different debts are weighed differently such as mortgages have a higher impact in your score than credit cards. Credit cards or revolving debts affect your score more than installment loan debts like car loans. The biggest thing that will affect your score in terms of paying off debt is the amount owed (balance) in relation to your total available credit. What this means is if you paid off one credit card but overall you still owe more than 50% of your overall available credit, it may not help you that much. You should look at paying down your balances to less than 50% of the available credit on every card first to get your score up. Once you're below this 50% threshhold, then you should work on paying the cards completely. Do what you need to do for your credit score first and be patient. Best of luck to you in the future.
1 vote
Chris Moores, , Santa Barbara County, CA
Thu Apr 9, 2009
Hi Mgm:
Are you a military veteran? I am a certified CalVet Va lender. CalVet will take into account efforts made to improve credit history even if the number is not at the national average seeked by conventional banks in this market.
0 votes
Cindi Wolf,…, , Lancaster, CA
Mon Mar 9, 2009
Hi again MGM,

I want to say how glad I am that you are working on this, and want to encourage you to keep up the good work!

What I would also like to see you do, is to talk with a lender to get a specific plan in place immediately. They can advise you what to pay off and how to maximize the impact on your credit report. You may be surprised at the little things you can do which can really make a difference!

If you don't know a good, reputable lender that would be willing to help guide you through the process, let me know and I can give you a few that I work with closely.

I know that very soon, you will be telling us that you are finally buying a home. Keep going, it will be worth it!

Cindi Wolf
Troth Realtors
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0 votes
Tvandemark, , 91355
Sun Mar 1, 2009
Hi Mgm,

You really want your card balances at 30% or less. Be careful not to close credit cards with positive (healthy) transaction records. Meaning if you have paid your bills on time or paid them off, you want to show that.

You may want to speak with a lender, they may aid in informing you which debts to pay off and/or which to pay down, and if you should close any. Good luck!

When your ready, put on your running shoes and let's get excited and find you a home!

Serving AV (born & raised), SCV, Ventura County,
TV-Tracy Van De Mark
Keller Williams Realty
(661) 310-4004
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0 votes
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