Does your FICO score decrease as you increase the number of properties you own?

I heard a rumor that your FICO score goes down if you own alot of property. This can't be true can it?

Public Comments

1. Well, I own 3 properties in the states and my FICO has actually increased. What hurts you is the DTI (debt to income) ratio. A way around both FICO and DTI is to put your property into a trust, have the trust make the payments and remove the loan information from the credit bureas. Now your DTI has decreased. EDIT: In response to the responses below: 1. I never stated that DTI is relevant to FICO. What I stated is that when you go to buy your third or fourth home, your DTI becomes a factor in getting a loan. Repeat, I did not mean that your DTI directly affects your FICO! 2. In regards to trust and credit reports. Once you have funded the trust with the property and have the trust make the mortgage payments, you can send proof to the credit bureaus that the trust is making mortgage payments and not you, thus removing the loan info from your credit report. So when someone pulls your credit, the mortgage info is not there and your DTI is lowered. 3. How you hold trust, whether it be LLC or S-corp or whatever, will depend on what you're trying to accomplish and your investing and exit strategies. There is no one answer for every person. 4. In regards to "wow go back to school,or read your ca principles of real estate book. you are giving terrible info". I personally feel sorry for the "quality" of information you give your clients if you make ignorant statements like this about subject matter you have absolutely no experience in. You should at least be kind enough to send them to a REAL real estate professional for help. My apologies on any confusion. Regards
2. no, it will increase as long as you make your loan payments on time. What hurts your score is to high of balances on credit cards, late payments, or closing accounts. Creditors view mortgage loans as favorable, they view high credit balances as negative. If you have 10 cards with below 25% balance and a good payment history you will have good credit, you have 2 cards with 75% balance you will have a lower score.
3. That is a fallacy....., FICO scores are your credit rating They range from 300-850, higher is better Most lenders base approval on them Higher scores mean lower interest rates FICO scores are calculated based on your rating in five general categories: Payment history - 35% Amounts owed - 30% Length of credit history - 15% New credit - 10% Types of credit used - 10% In response to the above remark about DTI, this is also not completely true. Think about it; if the credit bureaus took into account your debt to income ratio, how would they calculate it? Do they have access to the information on your loan documents? If so what about stated, no-doc and no-ratio loans? Do they take into account the information you give credit card companies? Do they average all this? My point is this would an impossible task, it cannot be accurate enough. They can tell by your standard of living and pay history if you are over extended. Credit scores are the measure of how you manage your debt. Period. I do have clients that own 15+ properties. The problem then is banks see 15 mortgages on the credit report and get squirmy. At that point, sophisticated investors use either: A. Hard Equity short term loans-very little documentation, typically do not report B. No Doc, No Ratio loans-near zero documentation, very fast C. As put above, own the property through a trust, but my personal preference is forming a limited liability corporation (LLC) which has many tax advantages as well.
4. oompa is absolutely correct . for a reference you can go to. www.myfico.com satarnag. what are talking about dti has nothing to do with determining your credit score. how does the 3 credit agency know what a person income is, that's not reported to them. and your thought about the trust is wrong also, if your property is in a trust you cant just pull it off you credit report. wow go back to school,or read your ca principles of real estate book. you are giving terrible info Realtor, investor and broker
5. no
6. Part of your score is the total amount owed. The higher it gets, it could lower your score. Also, alot of times people use lines of credit for their second mortgages. You will now have a large line of credit that is maxed out, so that can hurt your score alot. So getting a fixed rate home equity loan instead of a line of credit might be better. I've rarely seen anyone with more than a few properties financed that still has 720+ scores. Most likely because they also always had too many credit cards being used to prop up their cash flow. I've heard it's possible to have so many mortgages that the scoring system basically breaks down, and can't compute a score anymore. But you probably need dozens financed, which is very tough to do. You also would have more credit inquiries buying properties, so there's a possible impact. Every time a new account hits your report, your score drops temporarily until the payment history is established as well. Bottom line, if you buy a bunch of properties, it could definitely decrease your scores, especially if you buy a few in a short period of time. But take it easy, pay everything on time, and limit your revolving account usage (lines of credit and credit cards should never be over 50% of their available limit), and you might just end up better over time.