What you need to know about Credit Scoring

Almost all mortgage lenders utilize credit scoring in the approval process. Those that don’t will charge you a premium to ignore it. You need to know your score and you need to make sure it is accurate. An error in your credit file can cost you time, money, and even cause your application to be declined.

Your credit score is created by the Fair Isaac Corporation, which is why your credit score is sometimes referred to as a FICO score. It is not, as some believe, generated by the three major credit data repositories, TransUnion, Equifax, and Experian. Your score is not just a reflection of how you have paid your past credit obligations. Instead, it is a predictor of the likelihood that you will default (be 90 days or more late) on a credit obligation in the next 24 months.

FICO scores run from a low of 300 to a high of 850. The median credit score is somewhere between 700 and 720. If your score is below 600 you are in the bottom 10-15% of borrowers in the country. If your score 800 or higher you are in the top 10%. For most conventional programs you will need a score of 640-660 or higher. If your score falls below 620 or so you will be in a sub-prime category.

One of the biggest factors, after your repayment history in determining your score is credit card debt. You will lose points from your score if your current credit card balances are higher than 50% of the available or high balances. You will lose even more when that number reaches 75%. But the reverse is true also, so if you pay down this debt, you will gain points.

Another key factor you can control is the number of credit inquires you have. The more inquires, the lower your score. Get a copy of your consumer report. This way you can inform potential credit grantors of your score and payments without them having to run your report. This is key if you are shopping for the best program for you.

Many other factors can influence your credit score. For a complete explanation of credit scores and the factors that influence them, log on to www.myfico.com. This is official consumer web site for the Fair Isaac Corporation. You can order a copy of your consumer report and challenge any errors at this site.

Please feel free to contact us if you have further questions.

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