Billionaire investor Warren Buffett has a FICO credit score of 718, just under the U.S. median, according to a published report.
That might seem low for someone with so much net worth. But a high income doesn't boost a score and a lot can hurt one, limiting a person's ability to get mortgages or other loans at a favorable interest rate.
Knowing the score and keeping credit squeaky clean is especially important now that lending standards for mortgages and other kinds of loans have tightened.
"Today, great credit is worth a lot more than it was just a few years ago," said Alan Rosenbaum, chief executive of mortgage firm Guardhill Financial in New York.
Besides late payments, carrying a balance on many accounts or running a high balance relative to one's credit lines can cut a score. So think twice before getting new loans or co-signing on someone else's. Many lender inquiries over time can dent a score, as can credit report errors. One looks likely in Buffett's case, reported by Fortune magazine.
Excellence Starts At 750
The FICO score is named after its creator, credit-rating firm Fair Isaac (
A statistical analysis of a person's credit report at a major credit bureau -- Equifax (
"The formula for an individual's score does not evaluate income. Therefore, a high-net-worth individual may not have a high FICO score and vice versa," said Careen Foster, Fair Isaac product manager.
Banks using FICO scores in lending decisions may deny credit, charge more interest, demand more collateral, or require extensive income and asset verification if the applicant's score is low, Foster says.
In the housing boom, a score around 700 was more than enough to get a mortgage and a good interest rate. Today, many lenders want a 720, even a 740, to qualify for the best rates, Rosenbaum says.
Say someone wants a jumbo home loan of $1.5 million and can pay 30% down. Today a lender with particularly desirable rates may not give him the loan unless his FICO is at least 740, Rosenbaum says.
A few years ago, those scoring 680 or lower got such loans, he says.
No More Lenience
Today, an applicant with a score in the high 600s and not too much credit card debt could secure a loan from a traditional lender for about $200,000 but not higher, says Steve Habetz, president of Threshold Mortgage in Westport, Conn.
When loans are granted, lower scores mean higher interest rates.
"Twelve months ago, if you had 640 credit score you saw no differential in what your cost was for a loan and your ability to get a loan, compared to someone with a 720," Habetz said. "But things are different now."
Rosenbaum says someone with a score of 740 might get a 5-year adjustable jumbo mortgage at 5.5% with no points. Someone with a 700 score may get a 5.875% rate. Loan-seekers who score lower might have to hunt to land loans with interest rates of 6.25% or higher.
More Than A Score
Lenders today still do consider liquidity and income, not just a FICO score, Rosenbaum says.
But according to mortgage banker Peter Grabel, at Indymac Bank, many lenders will now only loan to people with very high credit scores.
"What we're seeing from most lenders is that the lending rate is becoming far more credit-score driven," he said.
It comes at a tough time. Many people are having trouble meeting credit obligations already. U.S. job losses hit 232,000 in the first quarter. The price of gas and goods has been rising.
What Next?
Amid economic challenges, hard-pressed consumers could go deeper into credit card debt and have trouble keeping their scores up.
A rise in revolving debt, including credit card debt, impacts a credit score. In December, this debt type grew at a 2.8% annualized rate nationwide. That rose to 7.1% in January, throttling back to 5.9% in February, the Federal Reserve says.
news source : http://money.cnn.com/news/newsfeeds/
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