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Simple Real Estate Definitions : FICO

2009
03.11

The basis of most mortgage lending is credit scoring. In general, the higher a person’s credit score, the lower his offered mortgage interest rate.

Despite the many credit scoring models in use today, however, just 3 are relevant to American homeowners:

  • The Equifax BEACON® score
  • The Experian Fair Isaac Risk Model
  • The TransUnion EMPIRICA®

Generically, these scoring models generate what are commonly known as “FICO” scores.

FICO scores are measurements of probability. The higher a person’s credit score, by definition, the less likely a person is to default on his home loan. This is one reason why credit scoring has added importance lately — mortgage lenders are very careful about what they’re lending and to whom.

Notably, minimum FICO thresholds have been added to all types of mortgage loans.

FICO scoring has 5 main components as listed above. Payment history and credit capacity are two of the largest pieces, but a myriad of other factors contribute to a credit score, too. For example, the longer your reported history of managing credit, the more favorably your credit score will respond.

The myFICO.com website does a terrific job with credit education, explaining in plain language the ins-and-out of credit scoring and ways to boost your score. It also makes a free, 20-page PDF available for download.

Whether you’re a homeowner or lifetime renter — consider it required reading.

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