When you apply for a mortgage loan, you expect your lender to pull a credit report and look at whether you’ve made your payments on time. What you may not expect is that they seem to be more interested in your FICO® score.
“What’s a FICO® score?” is a common reaction.
Each time your credit report is pulled, it is run through a computer program with a built-in scorecard. Points are awarded or deducted based on certain items such as how long you have had credit cards, whether you make your payments on time, if your credit balances are near maximum, and assorted other variables. When the credit report prints in your lender’s office, the total score is displayed. Your score can be anywhere between the high 300’s and the low 850’s.
Lenders wanted to determine if there was any relationship between these credit scores and whether borrowers made their payments on time, so they did a study. The study showed that borrowers with scores above 680 almost always made their payments on time. Borrowers with scores below 600 seemed fairly certain to develop problems.
As a result, credit scoring became a more important factor in approving mortgage loans. Credit scores also made it easier to develop artificial intelligence computer programs that could make a “yes” decision for loans that should obviously be approved. Nowadays, a computer and not a person may have actually approved your mortgage.
In short, lower credit scores require a more thorough review than higher scores. Often, mortgage lenders will not even consider a score below 600.
Some of the things that affect your FICO score are:
FICO® actually stands for Fair Isaac and Company, which is the company used by the Experian (formerly TRW) credit bureau to calculate credit scores. Trans-Union and Equifax are two other credit bureaus who also provide credit scores.
Stay up to date on the latest real estate trends.
That's the Way the World Goes 'Round
Stalemate is a situation in the game of chess where the player whose turn it is to move is not in check and has no legal move. The game ends in a draw. Since the start… Read more
This was the sub-heading of a Daily Pilot article I came across as I was sorting through old archives in a home I recently purchased in Laguna Beach. The article was p… Read more
OFF THE CHARTS When compiling year-over-year statistics, economists tend to work in single-digit percentages. For example, the U.S. GDP growth over the past few years … Read more
2020 Hindsight I know I’m one of the lucky ones. No one in my immediate family has been directly affected by COVID 19, although my father’s 92-year-old twin brother an… Read more
Proposition 19 recently passed, amending California’s Constitution by expanding qualifications for the transfer of a property’s taxable value. Beginning April 1, 2021,… Read more
This year has simply been bonkers. And we still have over a month to go! The news of Kobe and Gianna was swept away by the tsunami of events that followed: the pandemi… Read more
SOUTH ORANGE COUNTY COASTAL HOUSING IN DEMAND Despite the economy being shut down for the majority of 2020, housing along the coast of South Orange County has done exc… Read more
I think we can all agree that a bit of good news is welcome. My gig is working in the residential real estate market, particularly along the coastal towns of South Ora… Read more
You’ve got questions and we can’t wait to answer them.