In
today's increasingly automated society, it should
come as no surprise that when you apply for a mortgage,
your ability to pay can be reduced to a single number.
All the years you've been paying your mortgage,
car payments, and credit card bills can be analyzed,
sliced, diced, spindled and mutilated into a single
indicator of whether you're likely to meet your
future obligations.
All three of the major credit reporting agencies
(Equifax, Experian and TransUnion) use a slightly
different system to arrive at a score. The best
known is called the FICO score, based on a model
developed by Fair Isaac and Company (hence the name)
and used by Experian. Equifax's model is called
BEACON, while TransUnion uses EMPIRICA. While each
of the models considers a range of data available
in your credit report, the primary factors are:
• Credit History - How long have you had credit?
• Payment History - Do you pay your bills
on time?
• Credit Card Balances - How much do you owe
on how many accounts?
• Credit Inquiries - How many times have you
had your credit checked?
Each of these, and other items, are assigned a value
and a weight. The results are added up and distilled
into a single number. FICO scores range from 300
to 800, with higher being better. Typical home buyers
likely find their scores falling between 600 and
800.
FICO scores are used for more than just determining
whether or not you qualify for a mortgage. Higher
scores indicate you are a better credit risk, and
thus may qualify for a better mortgage rate.
