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Credit Scoring Info

In today's increasingly automated society, it should come as no surprise that when you apply for an Idaho home loan (mortgage), your ability to pay and what interest rates are available to you can be reduced to a single number, your FICO score, also known as your credit score. All the years you've been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Scoring Your Credit History

All three of the major credit reporting agencies (Equifax, Experian and TransUnion), use a slightly different system to arrive at a score. The best known is called the FICO Score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. Keep in mind that each bureau assigns you a score and when it is presented in an individual report, it may be higher then when the lender pulls a residential mortgage credit report. It is a combined three bureau report and the lender will use your middle score - not the highest or the lowest.

While each of the models considers a range of data available in your credit report, the primary factors are:

  • Credit History: How long you've had credit.
  • Payment History: Do you pay your bills on time.
  • Credit Card Balances: How much do you owe on how many accounts.
  • Length of Credit History: In general the longer the better.
  • Types of Credit: Generally, it's desirable to have more than one type of credit - installment loans, credit cards, and a mortgage, for example.
  • Too Much New Credit: New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.
  • Credit Inquiries: How often do you have your credit checked.

The last one is very important! Every time a Lender checks your credit, your score goes down. So be careful when shopping for a loan. Some Lenders pull credit without your knowledge and/or consent. Always ask and only agree when you're ready to apply for a loan.

Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 850, with higher being better. Typical home buyers likely find their scores falling between 600 and 800. FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I Change My Score?

What can you do about your FICO score? It can be challenging depending on your individual situation. Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. The most important thing is to know your FICO score and to ensure that your credit history is correct. Conveniently, Fair Isaac has created a website - www.myFICO.com - that let's you do just that. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available is some helpful information and tools so you can analyze what actions might have the greatest impact on your FICO score.

Each of the credit services offers similar services. Just visit their on their web sites at www.equifax.com,www.experian.com, and www.transunion.com.  If you wish to review your credit history for errors, and are not concerned with your FICO score, you're entitled to one free credit report a year from each of the three major credit-reporting agencies.  You can request your free annual credit reports at www.annualcreditreport.com. 

If you need to correct credit information, conduct all your correspondence in writing to the three major bureaus and then retain the records in a safe place. If you truly want to know how to repair or improve your credit then speak to a lender (I would be glad to refer you to a reputable lender in your area), not a consolidation service, utilizing a service indicates to a lender that you are unable to "manage" your finances by yourself.

Armed with this information, you will be a more informed consumer and better positioned to obtain the most favorable mortgage available to you. If you have questions, feel free to contact me anytime and I would be glad to get you in touch with a reputable local Idaho lender to help you sort through your financial needs. Click here to see a list of my preferred local lenders.

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