If you're in the market for a
loan, and especially for a home mortgage, you've probably
heard the term "FICO Score" or "Credit Score" or even
euphemisms like "strength of your application".
"Credit Scoring" is a means of applying a
sophisticated mathematical model to your credit behavior, and
the behavior of other borrowers like you. It's a way to more
accurately gauge how great of a risk you represent to a
lender. Although there a dozens of scoring models being
employed (and more on the way) the most well known company in
the scoring business is Fair, Isaac and Company, known
as FICO.
The major credit scoring companies are EXPERIAN,
EQUIFAX, and TRANSUNION.
SCORING MODELS
Scoring models like the one developed by FICO
has always been shrouded in mystery, especially when it comes
to specifics.
A numerical score is developed, typically ranging from 300 to
900, with the low end of the scale indicating a poor credit
risk. The higher your score, the better credit risk you are.
This can tell a lender whether or not they’ll lend to you. For
example, a credit score of 620 is frequently cited as a
"cutoff point" for loans that can be funded by Fannie
Mae or Freddie Mac. Below that, and you're usually off into
the private "sub-prime" market, where rates are MUCH higher
and in some cases require a large amount of money down on the
property. Major factors that influence credit scores are:
-
Late payment history
-
Collections/Judgments/Liens
-
Outstanding debt (high credit vs. balance)
-
Length of credit history
-
Pursuit of new credit
-
Types of credit in use
However, don't automatically
assume that if your score is below 620 that Greater Home
Land Mortgage can not provide a mortgage for your next
home. It's always best to consult with one of our
loan officers
to determine your credit situation and to find the best
suitable loan product based on your financial situation and
your credit scores.
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Click here to learn more about credit scores and how you
can work on improving your overall credit score.
