At one time or another we've all been annoyed at Credit Reporting Companies and the way they keep records on us. This page attempts to take at least a little of the mystery out of how this business works.
Background As you know, most mortgage loan packages are sold by the Lender to Investors. That’s one reason why Lenders are such sticklers for detail—a perfectly prepared loan package is the one an Investor will buy.
FICO Scores To rate a loan, the Fair Isaac Company, specialists in “predictive modeling” and “decision management systems,” developed a formula for credit risk assessment. The formula assigns a number value for each piece of credit information. Credit information includes payment history (35% of the formula), amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit (10%). (Thanks to our American laws, issues like race, religion, marital status, gender and national origin cannot be used as factors to determine credit worthiness.) Scores range from 300 to 850. A higher FICO score predicts a high liklihood that a borrower has the ability and willingness to repay the loan. A high FICO usually gets the borrower the best interest rates.
The FICO Basics These credit factors are given serious attention: bankruptcies, late payments, collections, judgments, current balances, number of revolving accounts, finance company accounts, number of accounts opened in the last 12 months, and the number of credit inquiries.
The Score Things like the quality of the credit information collected, interpretation of the data, even geographical reporting variations and simple mistakes, can impact the scoring. To review your credit status:
-Equifax 800-685-1111 www.equifax.com
and/or
-Experian (TRW) 888-397-3742 www.experian.com
and/or
-Trans Union Corp 800-916-8800 www.tuc.com
and/or
Good News If your FICO isn’t up to the level you wish it was, with the new loan packages you can still get into the home of your dreams. Yes, you may pay a higher interest rate in the beginning, but when your credit information improves and the FICO score goes up you can refinance the loan.
Mike McLane Can Put You In Touch With A Lender: 466-2332.
