February 26, 2015

Modeling Impact of Some Example Credit Changes on FICO Score Using MyFICO Score Estimator

I decided to use the MyFICO credit score estimator to model some changes in credit usage and see what kind of impact it might have on a FICO score. 

The basic starting point I'll use is my own personal situation.    I will then run the estimator again with changed information to see what kind of impact to the FICO estimate such changes might give me.

Keep in mind that this is just one example scenario and its just an estimator.  So this is not at all exact and your own results may vary.   The impact of changes will also vary depending on where your score starts as well.

My current score as of Feb 2nd reported by Discover card is 816.

Here is my current situation roughly and how I answered the questions : 
I have over 5 cards
My oldest card > 20 yrs
My first loan was 15-20 years ago
I've gotten 0 cards in last year
most recent 6 months ago
I've got a balance on 0-4 cards
The total balance is $1-5k
I have no missed payments
0 card are past due
The ratio of my current balance / credit limit is 0-9%.
I've got no bankruptcy or foreclosures

Starting with that info the estimator says my score should be 770 - 820.      So my actual score falls within their predicted range.

Scenario 1 :  Applying for 3 new cards

I'm going to rerun the estimator and this time tell it that I've applied for 3 cards in the past 3 months.
I keep all the other options the same.

The resulting estimate is now 745 to 795

This gives me an estimate that applying for 3 new cards may cut your FICO by ~25 points.

Scenario 2 :    Using a lot of cards at the same time

In this scenario I'm assuming that I use a lot of cards and will say I have balances on 9 different cards.

Estimated score is 750 to 800.    Spreading usage over 9 cards instead of 0-4 drops the FICO by ~20 points.

Scenario 3 : Adding a large balance on a card of ~20% of limit

I've got a large total credit card limit of over $100k.   What happens if I were to put $20k on  a credit cards, say to take advantage of some 0% interest promotion?

All else equal that will give me a estimated score of 740-790.   That drops the FICO by ~30 points.

Scenario 4 : Missing a payment and getting 30 days overdue

Lets say I forget or goof up and somehow miss a payment.   Mistakes happen.

That will give an estimated score of 680 - 730 which is a hefty drop of ~90 points on the FICO.


February 25, 2015

$1 MP3 Credit on Amazon for "buying" the Free Android App for 2/25

Short and simple version :  

Get this free app Escape From Work today and you'll get a $1 MP3 credit too.

So I just went to Amazon and bought their free app of the day.   I usually try to get the free app whether I am particularly interested in it or not, just so I can get a pile of games and misc. apps for free in case I ever want or need one.   Right after I got the free app. I also got an email notice saying I got a $1 MP3 credit.   I wasn't even aware of this $1 MP3 promotion.   But I googled it and found the details afterwards.

The free app today is Escape From Work

And apparently it qualifies for the $1 MP3 promotion deal, so if you "buy" that free app today then you get a $1 MP3 credit.

Here are the promotion details from Amazon's page :

Buy Select Apps for Android, Get $1 in MP3 Credit
How to Qualify for This Offer:

    Purchase at least one qualifying app offered in the Amazon.com Appstore for Android in the webstore or on an Android device. Many free and paid apps qualify or shop top free qualifying apps below.
    After completing a qualifying purchase, you will receive an e-mail indicating that a $1 credit for Amazon MP3 music has been applied to your account automatically. The e-mail will also provide instructions on how to redeem your credit.
    Promotional offer limited to one promotional credit per customer.
    Promotional offer is valid from February 1, 2015, through December 31, 2015 and subject to change. You must redeem the credit by January 31, 2016.

--This article may contain referral links which pay this site a commission for purchases made at the sites.

February 24, 2015

Did Lower Interest Rates Cause Home Values to Go Up?

It would seem that mortgage interest rates should impact the cost of housing.    The higher the interest the higher the payment and the less affordable homes become and vice versa.   I discussed this before in the article  If Interest Rates go Up then Will House Prices Go Down? and I didn't find any direct correlation.   I think the real answer is that there are just too many variables to see a direct connection.   Or home shoppers simply don't think or act that way.

In the past 12 months rates have dropped and so you might expect to see that impact home prices.  This presents another chance to look for correlation.   With cheap loan interest rates we can all afford to spend more on homes right?

Lets look at 30 year mortgage rate history from Fannie Mae

In the most recent month January 2015 the average rate is 3.67%.   A year before that in January 2014 the rates were 4.43%.    Rates are down 0.76%.    That may not sound like a lot but its pretty significant difference if you're looking at the mortgage payments.

Now if the assumption is that rates going up will cause home values to go down then we can also assume logically that the opposite will hold true.   That means that if rates go down then home values should go up.   With cheap interest we ought to be seeing lower payments and that would let buyers afford to spend more on homes and thus drive up market values.

Ok so what kind of impact on home values could that 12 month change in interest give us.   Lets start with a $100k mortgage in January of 2014 and figure the payment then compare to what kind of loan we'd be able to afford with a similar payment at the January 2015 interest rates.

With interest of 4.43% a $100,000 loan gives a payment of $502.53
With interest of 3.67% a $109,500 loan makes the payment $502.15

Based on the interest rate change year over year buyers should be able to afford about 9.5% more house.  

The Realtor site tracks median home prices and from 2013 Q4 to 2014 Q4 prices are up 6%.     So we certainly haven't seen the nearly 10% gains that the drop in interest might imply.


MBA Interest Rate Forecast from 2013

Almost two years ago I wrote about a MBA Forecast on Mortgage rates for 2013 & 2014

MBA = Mortgage Bankers Association in this context

They said at the time :
"according to the MBA, by the end of 2013, the interest rate on a 30-year fixed mortgage will be at 4.4 percent. And by the end of 2014, they see the rate at 4.6 percent."

Lets see how they did and compare their forecast to the actual rates in the history of rates from Freddie Mac

The end of 2013 rates were 4.46%.   But at the end of 2014 they were down to 3.86%

So the MBA was fairly close in calling the rate at the end of 2013 but off by 0.74% for the year later 2014 forecast.


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