This is such an important post for RI real estate buyers to understand when they are considering buying any large purchase such as a home. Bill Johnson has put it very well into a clear and concise post for all to read. Pass it on to your new buyers too. It is not just about the FICO score and what you have as far as debt to income makes a big difference on what your home mortgage rate can be or even if you are 'worthy' of a loan.
Great knowledge brings power to your life...read and heed!
All Credit Scores Are Not Created Equal !
A credit score is a like a financial drivers license. The essential things in our lives beyond family,are for most of us at least, financial in nature. The credit suppliers rely on the "score" to decide who gets credit and how much we have to pay for it.
So where do these scores come from and are there different kinds of scores or does everything generally fall under the title of " The Credit Score" ( FICO), If you are not sure of the answer to that question, read on.
There are a variety of different scores available and some of them are actually customized by specific credit providers ( lenders) for specific purposes.
The most familiar credit score consumers recognize is the FICO score. It's model is administered by Fair Isaacs and is based on the following criteria. Payment History. Payment history factors in a variety of information considering various types of accounts, any adverse public records such a bankruptcy, any negatives in pay history and when they occurred. Other key factors would be the number of accounts , paid as agreed, types of credit applied for, proportion of balances to total credit available, age of accounts, time since any recent activity, credit inquiries both authorized and non-authorized and types of credit actually used.
The way this criteria is used and formulated is part of the mystery associated with the FICO score but it is the strongest and held by many as the most reliable and consistent.
Another score is Vantage. The Vantage Score is a patent pending scoring methodology to provide a consistent interpretation of the combined credit files of the the reporting agencies and provides the ability to score a broader population of consumers, especially those that use credit infrequently.
Plus Score is was developed by Experian and is used to elicit credit risks that would influence the rates and terms by some credit providers. Some of the factors they consider are the amount of credit, how long credit has been used, the number of credit accounts and the type of credit along with payment history.
Trans Risk by Trans Union is a sort of unofficial " credit score" . Think of it as a consumer credit type of report.
Yet another model for scoring credit worthiness is Beacon. This was established by the Equifax credit reporting agency for the specific purpose of evaluating the credit worthiness in automobile financing.
There are other custom credit models used by a variety of different credit providers. All credit scores are not created equal. And any set of numbers alone does not define a person's total credit worthiness.
A lender wants the score to see how you manage your credit. But they also want much more than that if they are considering making you a loan. They want to see total debt and income. They will evaluate the relationship of total debt to income. A high score is not enough to qualify for financing. They want to see your whole financial life and evaluate how you live it.
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