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 In
the 1960s, Fair Isaac Corporation started working on a system lenders
could use to evaluate the likelihood of receiving repayment on loans.
Prior to that, it was really a matter of trusting an individual
to be a "man of his word," so to speak. Fair Isaac sought
to take human error out of the equation with a reliable system that
could determine whether or not consumers were truly worthy of credit,
and thus FICO was born. This evolved to become the standard for
lenders by the 1980s.
Credit scoring has an enormous impact on your
ability to purchase a home. It can mean the difference between getting
a good interest rate and the home of your dreams, or whether you
even qualify at all. For this reason, it is important for you to
understand the credit scoring process, and to know what you credit
score is when you look to obtain mortgage financing.
What the credit scoring model seeks to quantify
is how likely the consumer is to pay off their debt without being
more than 90 days late on a payment at any time in the future. Credit
scores can range between a low score of 300 and a high of 900. Most
commonly, scores range from 400 to 800. The higher the score is,
the less likely the person is to default on their loan. Only a rare
one out of approximately 1300 people in the United States has a
credit score of above 800. These people walk away with the best
interest rates. On the other hand, one out of eight prospective
home buyers are faced with the possibility that they may not qualify
for the loan they want because they have a lower score between 500
and 600. Here is a sample chart that illustrates how an underwriter
interprets the score in terms of risk, and how the interest rate
is affected.
This chart illustrates that, all other factors
being equal, the higher your credit score the lower the interest
rate.
[Dealing
with Credit Score Challenges] [Learn
About Credit Remediation]
[Learn the Five Factors
of Credit Scoring] [The Truth About
Home Appraisals]
[Interest Rates] [Mortgage
Rates] [Learn the Five
Factors of Credit Scoring]
[Return to Articles page]
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Mortgage Master Service Corporation
24909 104th Ave. S.E., Suite 100,
Kent, WA 98030
Phone: 253-859-5300 Toll Free: 800-583-7200
Fax: 206-382-9612 (Seattle line)
Email:
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