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Will lenders ever consider my payment history over my FICO score?

By   |  Posted in Ask The Expert

Q: I would love to know if Banks are ever going to get to where they will overlook the FICO 'all-important' credit score and look at a person's overall credit payment history. 

I have a home equity loan with a high interest rate that I've been told I need to modify or refinance.  We were turned down (just within the % range we needed to be by a little too high), for the modification.  The problem with refinancing is, we are working on a DMP (Debt Management Plan) to eliminate high credit card debt incurred for various reasons and attempting to get ourselves in a more healthy financial situation.  In the meantime, we have taken a hit on our FICO score and don't know how to go about getting anyone to look at us for a loan and/or refinancing of this loan, even though we aren't looking for 'new' money, and have been told we have an excellent payment history.

Any suggestions? 

This is so frustrating to me that the "economists" can't see things so obvious to fix the economy.   First and foremost, do something about the gas prices so there is more money for consumers to spend, and secondly, take a hard look at this whole 'FICO' score issue, which eliminates consumers who maybe have a bad score, but excellent payment history, and ability to pay, the tools to help themselves with lower interest rates, thereby again, freeing up more money to go into the economy. 

 

A: It’s unlikely, at least at this point, that mortgage lenders will be willing to overlook a borrower’s poor FICO score, even if they have a strong payment history. I agree that a borrower’s ability to repay a loan has more to do with than just their credit score, and a good underwriter will agree as well, however, qualification standards have changed recently and borrowers must have a certain score to be approved for certain products and assistance.

Since so much emphasis is placed on a borrower’s FICO score these days, I would suggest you work to improve your score every way you can. It may take months to get your score back on track, but it sounds like that’s what it’s going to take to get you some desperately-needed assistance.

I should also note that you should keep looking, especially if you have a pretty reasonable equity position even after the second lien is considered. Other lenders might not be quite as rigid, and the availability of credit in the second lien market is highly variable. You might luck upon someone to write a new loan for you. Making some phone calls and doing (and compiling) some research wouldn't hurt.

About the author:
Tim Manni is the Managing Editor of HSH.com and the author of the site's daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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