FICO Scores: Who Have The Best Overall?

Who have better credit scores on average – home buyers with higher or lower incomes?

Many might guess home buyers with higher incomes. The surprising answer is: People with lower incomes have slightly higher FICO scores. That finding, which emerged from a statistical analysis of all approved mortgages insured by the Federal Housing Administration (FHA) during fiscal 2007, is now supporting a forthcoming major policy switch that could affect thousands of buyers and refinancers.

FHA, which for decades has used a one-size-fits-all approach to pricing its insurance on home loans, plans to shift to a "risk-based" system keyed to FICO scores and down payments, beginning as early as mid-July. Private sector lenders and insurers have priced interest rates and premiums using sliding scales of FICO scores and down-payment amounts since the mid-1990s.

Under the new system, according to FHA’s outline of its plan, "a larger number of low-income borrowers (will) benefit from premium reductions than . . . moderate-, middle- and upper-income borrowers combined."

To set premium rates by credit standing, FHA plans to use the middle score of an applicant’s three FICOs generated by the national credit bureaus – Equifax, Experian and TransUnion. If only two scores are available, it will use the lower. For applicants with thin or "non-traditional" credit histories on file at the bureaus, FHA will underwrite and price the loans without reference to FICOs, with heavier emphasis on rent and utility payments among other measures of creditworthiness.

Comments about this move on the part of FHA? Sound off by using the "comment" link below.