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FICO score
A FICO score is a generic score used to rate your credit. The FICO score was created by Fair, Isaac and Company, Inc. and was designed to predict the probability of borrowers becoming deliquent in their credit obligations.

Mortgage brokers and lenders use a Tri Merge credit report to judge your credit worthiness. On a Tri Merge you are given three scores, one from each bureau, and are typically base you off of the middle of the three scores. The three bureaus are Equifax, Experian and Transunion.

Your credit score is one of the most important factors that determine the interest rate you will be approved for. In many cases, it will be the deciding factor whether to be approved for the loan or not.

One thing most people don't know is that the credit scores available from consumer sites such as freecreditreport.com, myfico, etc. are not accurate or valid when it comes to qualifying for a loan. In fact, the scores are compiled using a variety of different scales and methodologies, and can be very misleading. In fact, most of them are not FICO scores at all.

When it comes to mortgages, the only score that matters is the middle score which is pulled by your mortgage company (not the highest or the lowest, but the middle of three or the lowest of two bureaus)

If you are pulling your own credit, the only official federal government sanctioned website is annualcreditreport.com , which is the only place you can pull all three reports for free (once a year) without signing up for things unexpectedly or unknowingly divulging private information to prospective creditors.

What does your FICO score mean? Well here is the answer. Your FICO is an evaluation of the risk that you will go sixty days late on a credit obligation within the next twenty four months. Those with a score above 700 have a very slight chance of this happening while those with scores below 500 have a fairly good chance of going sixty days late within the next two years. The scoring parameters are based on extensive research of payment paterns of tens of thousands of credit consumers over the past ten to twenty years. As with any system that evaluates a potential risk, it is not 100% accurate but is correct more often than not.

It is very important to limit the number of credit inquiries during the qualification process. This applies to all inquiries, including auto and installment loans.

A common misconseption about credit scoring is that multiple mortgage inquiries will negatively impact your credit score. Inquiries within the same industry such as the mortgage industry within a 30 day period are counted as 1 credit inquiry. Factors such as recent deliquencies, credit card balances close to their limits, or a limited credit history have much more impact on credit scoring. The major credit agencies have this information posted on their websites.

If you plan on closing any credit cards, wait until your loan has closed, as the number of tradlines affects your FICO.

Credit scores and other information contained in the credit report are the most important factor out of the three major criteria banks use to to underwrite a mortgage loan application. The other two criteria are repayment capability and borrower investment in the subject property. It is much easier for a home buyer with good FICO scores to get a "no income disclosure" or "no down payment" mortgage than for a borrower with excellent income and asset to get a "no credit" loan.

When working with your mortgage professional you should have them review your credit file and give you a copy so you can identify any mistakes. Sometimes people will have a small collection amount they are not even aware of and which should not be there. This will affect your FICO score. Correcting these mistakes can improve your FICO score by 20 or 30 points (or more) in a short time.

Your fico will be used for numerous things but the majority it will be used to determine your credit risk.


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