Friday, January 16, 2009

When your credit score isn't what you thought

Re-fi’s are much the rage these days. We’re getting lots of calls with requests for mortgage quotes. At these times, a loan officer has to ask several questions before he can give an accurate quote. But one of the most important concerns their credit.

Three different consumer credit agencies, Equifax, Experian and Trans Union, dominate in American lending. When someone applies for a mortgage, the loan officer gets permission and then pulls the potential borrower’s credit from these three agencies.

Each of the credit agencies has their own algorithms to perform a statistical analysis of a consumer’s credit worthiness. The generated number varies from agency to agency because each has their own method of collecting data.

In turn, banks make many lending decisions on these scores. Instead of averaging the numbers, lenders tend to use the middle score of the three, somewhat ignoring the top and bottom numbers.

People who thought they had a score in the high 700’s might find their mid-scores in the mid 600’s. And vice versa. This is nothing new. Most people aren’t very good at just guessing their credit score.

A year ago, it wouldn’t have been a huge deal. Consumers basically fell into two camps. Prime and sub-prime. If a person’s FICO mid-score was above 620 they were considered prime. They got the same conventional rate as someone who’s FICO mid score was over 800.

No longer.

Conventional mortgage rates are now partially determined by what is called “risk-based pricing.” Your credit score makes a difference in determining your mortgage rate.

3 comments:

Anonymous said...

I agree - if your score is actually not good or great - you may want to see what you can do to improve it. Talk to credit score specialists for free at www.golookonline.com. If you dont know your score, you can see that for free at www.gofreecredit.com.

Anonymous said...

you can get a free credit report at annualcreditreport.com

freecreditreport.com will give you a free report, but will NOT give you the score(s)

origin8ing said...

Keep in mind that the scores the public receives on these free sites are probably not the same scores used when an inquiry is made for a new mortgage. In other words, a mortgage inquiry score will be different than what I can pull personally as a consumer.