As time impacts changes in technology, these changes trickle into sectors including real estate, financial services, and mortgage banking. These three sectors heavily consider the FICO score as critical for underwriting and transactional processes. Years ago, prior to the economic challenges the US suffered, a FICO score of 680 was considered good. However, today, a FICO score of 720 is now considered the cut-off where lenders begin measuring risk overlays.
And with these changes, consumers have demanded more transparency so that they can better understand the variables impacting their FICO scores, and to what degree. As a result, vendors who build the models to derive FICO scores have begun providing some guidance and a hint of transparency to the composition of a FICO score. For example, a new FICO model announced that it would use data from CoreLogic which gives weight to public data on borrower-specific accounts, landlord/tenant history records, and other property data. CoreLogic has stated that this new model would actually impact most consumers positively by roughly 1-3% in their FICO score. The point is that the FICO model constantly changes, and what was once a variable may not be as heavily weighted today comparatively.
Generally, a FICO score takes into account past payment history, current payment history, outstanding debt balances in proportion to the available limit, recent applications to open new debt (e.g. loan applications, credit card applications), the relation of revolving due versus installment, and the overall management of personal finances. Also, public records such as judgments, liens, and collections have an impact on the FICO score. With time, the significance of such accounts diminishes, as more recent accounts and pay histories become more important than older accounts.
And lastly, your FICO score determines how much you pay in interest, your access to credit, and your savings over a lifetime. It is vital to manage it properly and improve it whenever possible. Always utilize a professional to assess it and increase as frequently as possible.
Long Term Guidance: We advocate proper financial management. This means you need to know your credit score, along with the positives and the negatives, in order to improve it. That’s the key to a lifetime of low interest and access to credit.
Copyright © 2012 MortgageLoan Corp.