Credit Scores Explained

All loans must have a Credit Report to determine the credit history of a borrower. This report is to determine someone's credit experience and willingness to repay their debts. This information indicates to the lender the risks of giving them a new loan. The mortgage industry has gone through a change regarding Credit Reports which involves not only analyzing the borrower's credit history, but their credit scores as well. Credit scoring is simply a statistically based tool to assess the likely future performance of a borrower. This is accomplished by applying varying weights to certain characteristics in a credit report that have value for predicting future behavior. A statistical analysis is applied to those values ​​and used to calculate a risk score.

In today's mortgage world, most investors require at least one FICO score, but most require three credit score ratings. Scores are new to traditional mortgage lending, but have been in use since the 1950's in auto financing, the personal finance industry, and credit cards. The risk scores are generic models developed in conjunction with the three main credit repositories: Experian does the FICO score, Equifax does Beacon, and TU does Emperica. The bureaus provide access and delivery of the scores to lenders with the actual credit report. As an industry, mortgage lenders refer to this group of credit scoring codes as the FICO score. A minimum score of 620 is mandatory for any conventional loan underwritten to FNMA and FHLMC guidelines. Scores lower than 620 must pay extra points at best or use non-conforming (sub-prime) investors. The best mortgage rates and highest loan-to-values ​​are available only for high credit scores. (700 +) Borrowers with a bankruptcy, open collection accounts, late payments, larger than average balances on open accounts, liens, judgments, old collection accounts, or other derogatory credit of any kind must be evaluated and placed with the appropriate investor. A determination must be made early in the application by obtaining an In-File credit report for a $ 18.00 charge. In many cases, an In-File will be sufficient; however, if a Full report is required, the cost will be about $ 55.00, which includes a complete update of all credit accounts.

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If a borrower has a good credit history and a good credit score, they are generally placed in an A-paper (Prime) category. With less than excellent credit or a low credit score, the borrower can fall into categories ranging from A – to B, C and D. The interest rates for categories lessthan "A" are higher and usually require a larger down-payment or more equity in the home. Whenever a borrower's credit shows up bruised, we give them a copy of our Credit Repair Letters to begin the process of cleaning up their credit. This can even be the case with good or excellent credit as it is estimated that 96% of credit files have errors. If the credit can not be repaired immediately, the strategy is to place the customer in a band-aid type loan. This helps a borrower by getting them a loan for two to three years while re-establishing good credit. Once healed, we then refinance them into an "A" product for a better rate. As little as five years ago these loans weren't even available. Now we can help people that we couldn't before. This requires some planning and coordination, but the results are often phenomenal.

Credit Bureau Risk Score Factor Reason Codes
(The numbers are the codes shown on your report)

Amount owed on accounts is too high (01)

Level of delinquency on accounts (02)

Too few bank revolving accounts (03)

Proportion of loan balances to loan amounts is too high (03)

Too many bank or national revolving accounts (04)

Lack of recent installment loan information (04)

Too many accounts with balances (05)

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Too many consumer finance company accounts (06)

Accounts payment history is too new to rate (07)

Too many inquiries last 12 months (08) (Watch out for this one, you can screw up your score while shopping for a car or a mortgage.)

Too many accounts recently opened (09)

Proportion of balances to credit limits is too high on bank revolving or other revolving accounts (10)

Amount owed on revolving accounts is too high (11)

Length of time revolving accounts have been established (12)

Time since delinquency is too recent or unknown (13)

Length of time accounts have been established (14)

Lack of recent bank revolving information (15)

Lack of recent revolving account information (16)

No recent non-mortgage balance information (17)

Number of accounts with delinquency (18)

Too few accounts currently paid as agreed (19)

Date of last inquiry too recent (19)

Length of time since derogatory public record or collection is too short (20)

Amount past due on accounts (21)

Serious delinquency, derogatory public record, or collection filed (22)

Number of bank or national revolving accounts with balances (23)

No recent revolving balances (24)

Length of time installment loans have been established (25)

Number of revolving accounts (26)

Number of bank revolving or other revolving accounts (26)

Number of retail accounts (27)

To few accounts currently paid as agreed (27)

Number of established accounts (28)

No recent bankcard balances (29)

Date of last inquiry to recent (29)

Time since most recent account opening is too short (30)

Too few accounts with recent payment information (31)

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Amount owed on delinquent accounts (31)

Lack of recent installment loan application (32)

Proportion of loan balances to loan amounts is too high (33)

Amount owed on delinquent accounts (34)

Payments due on accounts (36)

Length of time open installment loans have been established relative to length of consumer history (37)

Serious delinquency and public record or collection filed (38)

Serious delinquency (39)

Derogatory public record or collection filed (40)

No recent retail balances (41)

Length of time since most recent consumer finance company account established (42)

Lack of recent mortgage loan information (43)

Proportion of balances to loan amounts on mortgage loans is too high (44)

Too few accounts with balance (45)

Number of consumer finance company inquiries (47)

Lack of recent retail account information (50)

Amount owed on retail accounts (56)

Lack of recent auto loan information (97)

Length of time consumer finance company loans have been established (98)

Lack of recent auto loan information (98)

Lack of recent auto finance loan information (98)

Lack of recent consumer finance company account information (99)