FICO Credit Scores are widely used by almost all types of lenders in their credit decision. It is a quantified measure of creditworthiness of an individual, which is derived from mathematical models developed by Fair Isaac and Company in San Rafael, California. FICO scores reflect credit risk of the individual in comparison with that of general population. It is based on a number of factors including past payment history, total amount of borrowing, length of credit history, search for new credit, and type of credit established. When you begin shopping around for a new credit card or a loan, every time a lender runs your credit report it adversely effects your credit score. It is, therefore, advisable that you authorize the lender/broker to run your credit report only after you have chosen to apply for a loan through them.
There has never been a published model of how exactly a score is derived. The secrecy of the FICO model reduces the likelihood of manipulation.
Example of a FICO score and listings on a credit bureau:
FAIR ISAAC/EXPERIAN INFORMATION:
B 555-55-5555 Doe, John/Jane B.
CREDIT RISK SCORE 0520 Positive
FAIR ISAAC REASON CODES
38 SERIOUS DELINQUENCIES AND PUBLIC RECORDS
13 LENGTH OF TIME SINCE ACCOUNT DELINQUENT
18 NUMBER OF ACCOUNTS DELINQUENT
20 LENGTH OF TIME SINCE LEGAL ITEM FILED
The FICO score is derived from the following criteria:
- Number of outstanding balances
- Balances owed vs. credit available or high credit
- Number of 30, 60, and 90 day late payments
- Public records that include; judgments, tax liens or bankruptcies
- Length of credit history
- Recent activity of any slow pay history
- Number of balances opened in the last 6 months
- Excessive credit inquiries
The purpose of the FICO score is to reduce the cost of examining a credit report and speed-up mortgage approvals. A FICO score can be determined during the process of becoming pre-qualified and allowing a qualified mortgage professional to review credit. Pre-qualifying is a process whereby a Mortgage Specialist obtains information about a client, either over the telephone or face-to-face and indicates the loan amount the customer can qualify for and the best type of loan to meet a particular need.
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