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Understanding FICO Credit Scores

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THERE ARE MANY CREDIT SCORING MODELS USED

IN DETERMINING CREDIT WORTHINESS.

 

This information is out of date

and most scoring methods have changed since

this information was gathered!

 

Each reporting agency develops different models for different purposes.

 

The information on this page should not be construed as the most current or even accurate.  It is likely that the following information may not apply to your situation or it probably is out of date.  Credit scoring is a dynamic process that is constantly improving with new technology.  The purpose is to show just some of the basic mechanics involved in arriving at a credit score for a home loan.

 

This page is a generic historical view of the credit scoring system used in the mortgage industry.  This is not the same system used for the auto industry or the retail version of consumer credit reports.  The credit reports ordered directly by consumers uses a similar system that may not always reflect the exact same score as the score given to mortgage companies.  Recently a borrower ordered their own consumer credit report online and obtained three scores that were much higher than our credit scores obtained during the same week.  Each model is different.

 

The following chart shows an example of information used in calculating your credit score.  Each reporting agency uses their own proprietary system of scoring.  It is written that credit scores in the past could range from 250 to 900 depending on the credit reporting agency and type of credit report required.  The "PLUS SCORE" developed by Experian, we are told ranges from 330-830.

 

The system we follow; Fair Isaac, "FICO"

- the scores currently range from 300 to 850. 

 

Our typical client scores range from 680 to 805

 

CREDIT SCORING CHART

The big three credit reporting agencies

Experian

Trans Union

Equifax

Initials of Big Three Credit Reporting Agencies

XPN

TU or TRU

EFX

Trade Names variations for scoring systems

Fair Isaac

New

Empirica

Facta Beacon 5.0

Trade Names variations for scoring systems

FICO

FICO Classic 98

"A" Paper borrowers will have most factors from this range and occasionally, some from bottom range.

Amount owed on accounts is too high

1

1

1

Delinquency on Accounts

2

2

2

Too few bank revolving accounts

3

N/A

3

Too many bank or national revolving accounts

4

N/A

4

Too many accounts with balances

5

5

5

Consumer finance accounts

6

6

6

Account payment history too new to rate

7

7

7

Too many recent inquiries last 12 months

8

8

8

Too many accounts opened in last 12 months

9

9

9

Proportion of balances to credit limit too high

10

10

10

Amount owed on revolving accounts is too high

11

11

11

Length of revolving credit history is too short

12

12

12

Time since delinquent is too recent or unknown

13

13

13

Length of credit history is too short

14

14

14

Lack of recent bank revolving information

15

15

15

"B" Paper borrowers might have several factors from this range and some from top range as well.

Lack of recent revolving account information

16

16

16

No recent non-mortgage balance information

17

17

17

Number of accounts with delinquency

18

18

18

Too few accounts currently paid as agreed

19

27

19

Time since derogatory public record or collection

20

20

20

Amount past due on accounts

21

21

21

Serious derogatory public record or collection

22

22

22

Too many bank or revolving accts with balances

N/A

N/A

-23

No recent revolving balances

24

24

24

Proportion of balance to loan amounts too high

33

33

33

Lack of recent installment loan information

32

4

32

Date of last inquiry too recent

N/A

19

N/A

Time since last account opening too short

30

30

30

Number of revolving accounts

26

26

26

Number of bank revolving or revolving accounts

N/A

26

N/A

Number of established accounts

28

28

28

No recent bankcard balances

N/A

29

N/A

Too few accounts with recent payment information

31

N/A

31

 

Fico Scoring Explanation

The agencies use a complex formula that references the points for each factor shown above that applies to your credit.

 

Borrowers with perfect credit will still have deductions. The credit bureaus do not disclose the entire process of calculating your credit score.

 

The sample factors below are the only part of the formula that is publicly disclosed. Mortgage credit reports usually show the top four factors.

 

 

A mortgage lender will look at the section with

 the credit scores and pick the middle number.

 

"High, Low, Middle."

 

Not an average of the three ... the middle score.

 

 

This is your score for home loan purposes. The middle score in this sample below is 769. This is an example of excellent credit.

 

 

 

This is a sample of the bureau score information

on a typical credit report

 

It may include a list of top four factors in calculating your score

 

Credit Bureau Source,     Credit Score



XPN - Experian / Fair, Isaac Model 780                      < High Score
-10 Proportion of balances to credit limit too high
-14 Length of credit history is too short
-08 Too many recent inquiries last 12 months
-09 Too many accounts opened in last 12 months

TUC - Trans Union / New Empirica 761                       < Low Score
-05 Too many accounts with balances
-28 Number of established accounts
-10 Proportion of balances to credit limit too high
-12 Length of revolving credit history is too short

EFX - Facta Beacon 769                                          < Middle Score
-04 Too many bank or national revolving accounts
-10 Proportion of balances to credit limit too high
-05 Too many accounts with balances
-32 Lack of recent installment loan information

 

 

The following credit bureaus provide the credit scores to

mortgage lenders:  

 

Addresses for retail or other industry inquiries may be different.

 

 

Experian
P.O. Box 2002
Allen, TX  75013-3742
(888) 397-3742

Name of Score: EXPERIAN/EXPERIAN/FAIR, ISAAC MODEL/ FICO         
Range: 250-900  (Old information/ not verified)

 

Name of Score: FICO
Range: 300-850  (Old information/ not verified)

 

Name of Score: PLUS SCORE (consumer version developed by Experian)

Range: 330-830  (From recent consumer credit report disclaimer)

 

 

Trans Union
P.O. Box 1000
Chester, PA  19022
(800) 916-8800

Name of Score: TRANSUNION/FICO CLASSIC 98/ old name, New Empirica
Range: 336-843 (Old information/ not verified)

 

 

Equifax                             
P.O. Box 740243
Atlanta, GA  30374
(800) 685-1111

Name of Score: EQUIFAX/FACTA BEACON 5.0
Range: 300-850 (Old information/ not verified)

 

 

The system we follow; Fair Isaac, "FICO"

- the scores currently range from 300 to 850. 

 

Although our typical client scores range from 640 to 760

with some below 640 and a few above 760

 

 

 

What is a Credit Score?
A credit score is a rating used by a lender to help determine whether you qualify for a particular credit card, loan, or service. Based on information in your credit file, the credit reporting agency analyzes your information using a complex mathematical model to yield your credit score.  Most credit scores estimate the risk a company incurs by lending you money or providing you with a service -- specifically, the likelihood that you'll fail to make payments in the next two to three years.

 

 

The higher the score, the less risk you represent.

Your score is calculated by a mathematical equation that evaluates many types of information found in the credit file.  Many different formulas are used to calculate credit scores, but most are based on the following factors, which each scoring model weighs differently:
 

 

Payment history

If you have a habit  of late payments on your current and past credit accounts it will lower your score.
 

 

Public records

Your public record such as bankruptcies, judgments, and collection items may lower your score.

 

 

Amount owed

Owing too much will lower your score, especially if you're approaching your total credit limit.

 

 

Length of credit history

In general, a longer credit history is better.
 

 

New accounts

Opening multiple new accounts in a short period of time may lower your score.

 

 

Inquiries

Whenever someone else gets your credit report -- a lender, landlord, or insurer, for example -- an inquiry is recorded on your credit report. A large number of recent inquiries may lower your score.

 

 

Accounts in use

The presence of too many open accounts can lower your score, whether you're using the accounts or not.

 


 

 

FICO SCORE Formula

We recently read a report that may give you an insight to the calculations in your score. The following information may be considered an illustration of the complexity used in credit analysis and not a "how-to" blue print for improving your scores.

 

We understand from one source that, Fair Isaac divides various portions of your credit history from the big three credit bureaus into five large categories. The categories may contain data with up to twenty-two different pieces of on-going information from each person with a credit history.

 

Mathematical formulas divide the importance of the information into a final score with a break down similar to this:

 

Your past record or history of paying your credit cards on time is vary important and represents up to 35% of the final score.


The amount of debt represents around 30% of your score.


The length of your credit history that can be verified adds up to 15% of your score.
 

The amount of recent or new credit will factor about 10% of your score.


We don't know how much weight is given to paying your mortgage on time compared to paying your car or credit card on time.  We have read that the

types of credit used impacts the score by about 10%.

 

The good news for many borrowers, is that your income represents 0% of your credit score. The credit bureaus do NOT have access to your income.

 

It is also interesting to note that only

10% to 15% of all borrowers have FICO SORES over 800.

 

Bottom line...pay all your bills in a regular timely manner following the terms given by the creditor.  Obtain only enough credit to manage your financial affairs in a reasonable way.  Plan your purchases.  Limit the inquiries.  Make it a lifetime goal to persistently pay down your debt ahead of the creditors schedule.

 
 

For Illustrative Reference Only:

 

Some numbers may be rounded, contain typographical errors, contain out-of-date data, or it may not apply to your situation.  

 

Accuracy is not guaranteed. 

 

If you find a error or a recent change in the information shown, contact us.

 

Please seek professional mortgage advice in your home state to discuss your personal credit situation.

Harp Financial Mortgage Company can only help individuals with home financing in California.