Average Credit Score

The average credit score varies depending on the scoring model you are using.

According to Fair Isaac, it is a 723. This is the FICO Score model used by a majority of mortgage lenders. But if you ask the folks over Vantage Score, you are probably going to get a much higher number as they have a scale that unlike the FICO range of 300-850 goes from 501-990.

You can get even more confused with the National Score Index which states a national average credit score of 694. This is based on a 330 to 830 range.

What does average mean anyway? Not many lenders are looking for average candidates these days. They want people with the best credit. And while an average of 723 used to be fine, now you need an above average credit score to get the best rates or even get a loan at all.

This is why it’s important to check your FICO credit score as it’s most likely the one your lender will use in your lending decision.

How Much Will A Foreclosure Impact My FICO Credit Score? – Episode #49

Foreclosures and short sales will impact your credit score significantly!

How many points will my credit score drop from a foreclosure? There is no correct answer here, and anyone who tries to give you an exact point drop is guessing. I’d expect a 100-150 point drop for most folks from a foreclosure. A 200 point drop is more likely if you had a score over 750-800, but I suspect few people are in this scenario, as most people are looking at foreclosure after maxing out credit cards and being late on other loans.

The length of time your credit score needs to recover? Again, it depends, over a year in most cases. A foreclosure is not quite as damaging as a bankruptcy and a bankruptcy can take 18 months or longer to improve your credit score. Your score is not likely to reach the 800s until the foreclosure drops off your credit file and that will take 7 years. Remember, a bankruptcy takes 10 years to fall off your report.

Because of the credit crunch, Fannie Mae has stated new requirements before you can be approved again for a home loan:

• Foreclosure: 5 years from completion date; additionally between 5 and 7 years you can only purchase a personal residence, and must have a minimum of 10% down and 680 credit score. Also you can only do limited cash-out; no regular cash-outs are permitted. After 7 years you’re back at square one.
• Deed in lieu: 4 years from completion date; also 10% down payment required between years 4 and 7.
• Short sale: 2 years from completion date.
• Chapter 13 bankruptcy: 2 years from discharge date or 4 years from dismissal date
• All other bankruptcies: 4 years from either the discharge or dismissal date

In addition, you should know that a short sale is seen as similar to a foreclosure by the credit score models. Perhaps, you could get a break as the lender might not report the short sale -whereas a foreclosure will definitely be reported — but I wouldn’t count on this.

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