655 to Zero in 5 Seconds

The current chaos in the lending industry is presenting us with new challenges all the time. A few weeks ago we were hit with banks reducing or freezing equity lines causing fits for those who were counting on their HELOCs as swing loans, or to purchase property when a good deal came around. So I advised my clients to take the money out now if they thought they were going to need it later this year.

Now we have another wrinkle - credit scores. Have you ever heard of someone having NO credit score? A FICO score of ZERO? This just happened to a buyer who was pre-approved for a loan, had a credit score of 655. Purchased a property. Then the lender went to double-check the credit score, and it dropped from 655 to zero overnight. The reason? The buyer didn't have enough "activity" going back two years to generate a score. It used to be that if you didn't borrow a lot of money and didn't havde a lot of debts to pay back, that was a good thing. Well in 2008 it's now a bad thing. FICO has decided that without enough recent evidence that you faithfully pay credit back on time, they will not issue a score.

The moral of the story is that if you want a credit score, you must have "activity" in the past two years. I don't know how much activity or what kind of activity, only FICO knows, and they hold your credit score in their hands. Scary.