Debbie Siegel's Mortgage Minute
FICO 2008
This spring Fair Isaac Corporation, the company that determines your credit score, is revamping their scoring model.
They're hoping the new scoring model will do a better job in predicting borrowers' default rate.
Why should you take note of this change? First, let's define what a credit score is:
- A highly specialized risk assessment based on the information supplied solely within a single credit repository (Experian, Transunion, Equifax).
- A "snapshot" of a consumer's credit profile at the particular point in time the credit report is obtained from a repository.
- A summation of risk of repayment of debt by a consumer based on the repository's credit profile as ranked against all other consumers with credit.
Credit bureau scores range from approximately 300 - 850 points -- the higher the score, the lower the risk of default. A credit score is calculated by the repository's software being utilized to create a credit report, and is based solely on the good and bad data within that repository's individual credit file.
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The score is made up of 40 different variables to determine the risk score given to a particular consumer. It takes into consideration the level of credit indebtedness and payment histories, length of credit histories, number of recent credit openings and inquiries, and the type of credit used. It does NOT take into consideration race, color, national origins, marital status, occupation, income or length of current address.
The new credit scoring model will be more sensitive to people with newer or "young credit" as well as "thin credit" (i.e. few trade lines) and consumers seeking new credit. Financial institutions want this information in order to ensure potential borrowers aren't becoming excessively obligated and over-extending themselves.
Because banks, lenders and creditors are changing their underwriting guidelines almost daily, I can't stress enough how important it is to work with people you know and trust. You always want to make sure you are getting the right information.
Got questions about real estate financing? Contact
Debbie@westchester-mortgage.com
or 617-965-1236. She'll consider them for
inclusion in a future column. Debbie Siegel is president of Westchester
Mortgage in Newton, Mass. She is licensed in several Northeastern states.
