FICO Psycho

While I won't promise to do TOTAL disclosure, I do want to document all stages and aspects of the condo hunt.  I'm now approaching my originally scheduled time for mortgage pre-approval, and before I started shopping around I wanted to find out my FICO score.  I know that, in general, my credit is good, but I wanted to be armed with my specific figures so I could make educated estimates about my likely treatment, and push back if I happened to run into a lender who tries to railroad me.

There are multiple types of credit scores out there, but FICO remains the gold standard - it is used by most lenders, and is the only score that is consistent across all three bureaus.  (At least in theory - more on this later.)  What sucks is that you have to pay to see them.  You're entitled to a free annual credit report from each bureau - and should take advantage of it - but there's no law which says that they have to share your actual score.

Currently, the place to go to buy scores is myfico.com.  You used to be able to buy all three here; Experian pulled out, and there currently is no way for a consumer to directly find their Experian score.  Boo!  The scores are also kind of expensive, over $15 each.  Double boo!

On the plus side, there is a coupon code you can enter for a discount.  Do a google search and one will pop up.  I saved 20%.

You enter your SSN, address, and answer some very basic credit questions.  In my case, they weren't able to verify me on the website, so I had to call their number to complete it.  This was a pretty fast process - I wasn't on hold for more than a few seconds.  There was some back-and-forth due to minor errors on my file - TransUnion apparently doesn't know the difference between Kansas City Missouri and Kansas City Kansas, and is incapable of looking up ZIP codes to determine what state an address is located in.  But the operator was reasonable and figured out that I was who I said, so she freed me up.  After that I could just log in to the web site and view everything - perfect.  The whole call from start to finish was less than 5 minutes.

The presentation on the web is good, well organized and colorful, with an easy printable version.  Once you purchase it, your report stays available online for about a month.  I believe that it's still frozen to the date you ordered, though - I don't think it's updated during that time.

Now, for the actual content....

I've been warned before that scores almost always vary between bureaus.  People explain this by saying that, while the FICO formula is constant, each bureau has access to slightly different information about you, so the inputs to that formula are different.  For example, if an account doesn't appear on one report, that will affect your corresponding score.  In general, scores are usually in the same ballpark as one another, unless there are any significant problems.

In my case, I was surprised by, first of all, how big the difference was between the two.  24 points isn't huge, but it isn't a rounding error either.  Even more perplexing, though, why the two would be different.  I've spent more time than I should looking over the two, and every time I find a discrepancy, it seems like the lower (TransUnion) score has the more favorable information.  The specific differences that I noticed are:

• TransUnion thinks that I'm using 15% of my available credit, while Equifax thinks I'm using 16%.  Equifax lists that 16% as the single biggest factor hurting my score.  My utilization is lower on TransUnion, but somehow my score is lower?
• TransUnion lists my oldest account, from a credit union, which is over 10 years old, in addition to a long-closed credit card from around the same time.  Equifax just lists the credit card.  Both reports say that having had credit longer helps my score; TransUnion has a longer history, but a lower score?

Other than that, the two reports are virtually identical, listing the exact same dollar amounts for my revolving accounts and installment accounts.  So where's that 24 points coming from?  Again, I shouldn't be obsessing about it, but I am.

Now, on to detailed results.

Full disclosure: my current TransUnion score is 764, Equifax is 788.  The maximum possible score is 850.  According to them, anything over a 760 is eligible for the best rates; further improvements won't affect lenders' decisions.

So I'm above the cut-off, which is awesome.  The TransUnion number is closer than I would usually feel comfortable with.  I'm guessing that most lenders simply pull all three reports and average the results.  I don't know what my Experian number is, but I imagine it's in that zone - I do the free credit report every year (at staggered 4-month intervals), and on the last few cycles there haven't been any major discrepancies between them.

That said, because this is a Big Deal, I probably will go ahead with my plan for Extreme Credit Awesomeness.  The basic idea is this - I already pay off my credit card in full each month, but lenders don't really know that, since they just see the balance in each monthly statement.  Since paying online is so easy, when I know that lenders will be pulling my score I plan to start paying my bill BEFORE the statement is generated - basically, stop taking advantage of the free float that the card gives me, and instead make earlier payments so that the actual statement balance is close to 0.  This will probably have a decent impact on the credit utilization area of the report.  A little over a year ago, my apartment complex started letting us pay our rent online via credit card WITHOUT adding an extra charge, which is AWESOME with my 1% cash rewards.  But that definitely inflates the amount I owe each month.  Anyways, depending on how aggressive I get with this, I can probably get revolving credit utilization down close to 0%.  Best of all, it doesn't require paying any more than I already do, just doing it a little earlier.

On a side note - one thing I am a little concerned about is what will happen if a lender closes one of my other cards.  Right now I exclusively use a particular card, but the other cards still count towards my total available credit limit.  Any of those cards could close at any time, instantly bumping up my utilization.  Some advisors recommend that people place a small charge on each card every month to keep them active.  I suppose I could do that, but... I dunno.  I'd rather drive down balances than spread them around.

The second major thing I could do to improve my score is to accelerate payment of my student loans.  I long ago paid off my standard education loans, so the ones that are left are the federally subsidized ones.  I made the decision a while ago to keep them and pay the minimum over 10 years.  At the time, I was earning several percentage points more in my online savings account than I was on the loans.  Now that rates have crashed, that's no longer true, so it may make sense to pay them off more quickly.  I'm a bit reluctant to do so - this would help my score, but would be directly debiting the amount I'm saving for a down payment on my condo.  If I thought that taking this step would put me into a better mortgage rate bracket, I might go ahead and do so, but as it is I think I'll stick with the current plan and just keep an eye on it.

Speaking of rates... there is a lot of cool info that comes with your report, and one of the most helpful is a chart showing the average interest rates for various types of loans broken down by FICO score range.  For a 30 year mortgage, on this day I could theoretically have gotten the best rate of 5.274%.  (In reality, rates in California are always a bit more expensive, and as I've griped about before, rates on condos are more expensive still.)  The next best set of rates (700-759) is 5.496%.  The lowest (620-639) are 6.863%.  They point out that, on a $250k mortgage, the difference between the highest and lowest score results in about $256 every month.  Not a small amount of money!  You could buy seven credit reports for that!  A nifty online tool lets you put in your state and mortgage amount to get personalized payment estimates.  (These exclude taxes and insurance, so they're beguilingly low.)

So, now that I have this wonderful raw data, how will it affect me?  Not a whit!  But it does give me more confidence as I go into the next stage.  I feel like I have a game plan for how I can juice my stats a bit, and even better, a little serenity that I don't need to panic too much.  Pre-approval, here I come!

So, rates jumped up last week. What does that mean?

It's potentially devastating to people who are in the middle of buying or selling a particular property. The impact of higher rates is that a monthly mortgage payment automatically gets higher, so people cannot afford as much as they used to. For buyers, that means that the house at the extreme of what they could afford is now beyond their means. For sellers, it means that a contract might fall through because the seller cannot find a mortgage they can afford; if they haven't signed a contract yet, fewer buyers will be available to buy at their desired price.

Over the long term, it tends to even out. Eventually, sellers need to drop their prices to attract buyers. Buyers end up with the same properties, paying the same monthly amounts, just with more going to interest and less to principal.

In my personal situation, one thing I've noted and complained about is that condo interest rates are always higher than traditional single family home rates. This past week seems to confirm that the rates move at the same time and in in about the same amount for both types of mortgage (both 30 year fixed, 20% down). Provident Credit Union, a local outfit in the Bay Area, features a really nifty online mortgage tool; one of the things they offer, that I've signed up for, is email notifications of the current rate for a type of mortgage you're interested in. For more than a month now my desired one has been a steady 5.25%; last Friday, it was 5.75%. (Update: As of June 9th, it's jumped to 6.125%! Ouch!)

Off mortgage, on to property:

I'm increasingly interested in the Millbrae area. If prices continue to fall, I think that's probably where I'll wind up. I've visited a few times on weeknights and weekends, and it feels right to me... there's a good scale to their downtown, large enough for variety and an interesting walk, but not too dense or overwhelming. Being close to the Millbrae BART/Caltrain station would help with the commute. The weather seems to be quite nice - I have the advantage of nearly a year's worth of observation on my daily Caltrain ride, and I can see that it tends to be quite sunny, especially compared to the section of the peninsula immediately north.

Current downsides that I see: Again, expense is huge; there have been some significant reductions in condo prices lately, but I think there's probably more movement to go. Demographically, it's a bit older than I would prefer. And, possibly on a related note, I don't see a lot of people walking around the residential part of town - there's lots of good foot traffic on Broadway, and the parks look fairly busy, but almost nothing once you get up into the hills. (Which, to be fair, may itself be the reason why - it may feel less like a neighborhood stroll than scaling a mountain. I love slopes, but many people don't.) Oh, and every time I've been there it's been quite windy, which doesn't exactly bother me but is interesting.

So, we'll see how that goes. Right now I have alerts set up at Zillow to email me when new condos are put on the market or sold. I'm currently looking at the area west of El Camino and within about a mile or so of the station; this includes both Millbrae and the northern part of Burlingame, though Burlingame can make Millbrae almost look cheap. I also have RSS feeds into Craigslist's real estate section, which also provides some insight into what's in the market.

So far, the thing that I've noticed the most is how few properties are moving. There are several units at 555 Palm that have been on sale for months, one of them for at least six months, and have been through a $100k price drop but still haven't sold. The cheapest option seems to be 300 Murchison (Windwater Mills, formerly an apartment complex known as Avalon), but I'm not crazy about the location - it's close to the high school, and even when I visit on weekends the traffic feels really heavy there; plus there's some pretty disturbing reviews online about living there. There are two new condo developments, 88 South Broadway and Park Broadway; as far as I can tell, they've hardly sold anything for months. Park Broadway has slashed prices; 88 South may have cut them, but it's hard to tell, since their web site is extremely out of date.

There's another property, originally called Belamor and now Millbrae Paradise (a name I like far less), which is scheduled to go on the market in August. We'll see how that affects things - I imagine that, unless the housing market has decisively turned around, it will probably drive down the other prices.

So, that's that. Fun times!