Posts Tagged: ‘FICO’

How does your credit score measure up?

December 13, 2013 Posted by Andre Hemmersbach

Every once in a while I will get a customer that wants to know how his score compares to the average person. So I did a little research and was surprised to find out that credit scores were not dispersed as I had thought.

Your credit score is a numerical reflection of the quality of your credit based on statistical logarithms developed by some brainiac math geniuses that will not release the exact formula they use. But the generalities break down like this:

Payment history, length of credit history, recent inquiries, number of accounts and used credit vs available credit. For more on how credit scores are generated and how you can raise your score see How a credit score is figured

Back to credit score averages. Statistically, I was expecting to find a bell-shaped curve where the majority of people are in the middle and that either end of the spectrum (lowest and highest scores) would have less people. Apparently credit quality is fairly even across the board. See the chart below to see how you compare.

Its important that you know your credit score and that it accurately reflects your credit history as generally speaking the higher the credit score, the more likely you are to be offered better credit terms.

If I can be of any assistance in educating you about your credit score in preparation of buying your home, please call me.



Anatomy Of Your Credit Score

November 23, 2013 Posted by Andre Hemmersbach

A Credit Score is a number that ranks a consumer’s credit risk based on a statistical evaluation of information in the consumer’s credit file. In layman’s terms, it’s a number that represents the risk that you will default on a loan, using your prior payment history and other factors as a benchmark. Statistically speaking, the higher your credit score number the less likely the lender will experience delinquencies or a default on your account. Different industries use different credit score products. For instance mortgage lenders rely on FICO or the Fair Issac Credit Company score to determine your credit risk level for home loans. A car dealer and a credit card company may rely on different credit score products. Each mathematical algorithm used to calculate credit scores is unique and extremely complex, so the information below is a simple explanation of how a FICO credit score works.

A FICO score is based on five different weighted factors as presented in the pie chart below:

The most common question I hear about a borrower’s credit score, is how to quickly increase the borrower’s representative score, so that we can get the borrower approved for a home loan. Sometimes we can also quickly improve a score to get a client a better rate and fee combination. The basics for increasing your credit score are all related to the weighted factors in the chart above and have to do with:

  • Correcting any delinquent payment histories that are incorrect.
  • Paying off account balances.
  • Rearranging account balances.

We have tools available by which we can create a plan that actually allows us to try different credit scenario fixes and measure the resulting credit score improvements. This new tool has already saved many of our clients time, money and frustration and is not available through your standard mortgage conduits. If you are looking to purchase a home in the next six months I would highly recommend a free credit consultation to make sure you have the best possible chance of getting the lowest interest rates on your mortgage.

Finally, when dealing with credit score issues it’s best to get help from someone who understands how credit scores are figured.  Attempting to raise your credit score yourself could be counterproductive as simple mistakes made during the process can actually decrease your credit scores delaying or making your home loan more expensive.  Please call me if I can help you.

New Credit Requirements

February 16, 2011 Posted by Andre Hemmersbach

A recent change by Fannie Mae, the agency who purchases 90 of conventional fixed rates, has just made it even more important for you to work with an experienced loan officer very early in the “shopping for a home” phase. These recent changes make it more expensive to get a home loan unless you have a perfect credit score. Formerly a FICO score, a measure of your credit worthiness invented by the Fair Isaac Corporation, of more than 720 would get you the best rates. As of February 3, 2011 a FICO score of 735 on a sales price of $350,000 with a 10% down payment would cost you $1600.00 more in closing costs or $74.00 more per month in a higher mortgage payment. The increases get even more drastic if your credit score is lower. For instance a 670 FICO would cost you $5513 more in closing costs and $148 more in monthly payments. These increases are substantial for most home buyers!
To help resolve the issue of over paying for your home loan, get with an experienced loan officer 90 to 120 days before shopping for a home. During this time corrections can be made to erroneous credit blemishes and reporting. Sometimes it can be as little as moving 20% of a credit card balance to an empty credit card that can raise your score enough to put you over a pricing benchmark.
Most recently we helped a customer who we saved over $2600 in extra closing costs by opening a credit card and having him charge a $12.00 purchase and pay it off. His credit score jumped 5 points moving him from 739 to 744, or 4 points above the 740 cut off for additional pricing.
If I can be of assistance to you in your lending needs please call me.