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Understanding Fico Scores


To start, the dirty truth is this:  A bunch of mathematicians got together and analyzed thousands of payment histories, both for those with perfect credit and those that fell into bankruptcy or foreclosure.  What they found is that there are similarities between borrowing habits, payment timeliness and whether or not someone will pay back a loan!  In the end, what these mathematicians created was a statistical model used by lenders to help predict the possibility of you going into foreclosure or bankruptcy with in the next 24 months; basically, your credit score tells us if you are a risk to lend money to or not.


FICO SCORES were developed by the Fair Isaac Company based in Marin County, California.  There are three major credit bureaus licensed to run individual credit data through the statistical model.  However these three each have their own proprietary model, which will provide a different score.  For this reason, when you get a mortgage, we are required to pull a Tri-merge (putting your data through these three models) so that we can see your high, middle and low score.  In the end, most lenders and loan programs require we use the middle score for qualification purposes.


The higher your score, the more likely you are to pay your mortgage on time meaning you are of little risk.  Higher credit scores will open the door to lower interest rates and the ability to get most any loan offered in the market.  If your score is on the lower side, you will most likely still be able to get a loan, however your options may be limited, as compared to those with higher scores.


The FICO scores range from the 400’s up into the 800’s.  While we all want to get our scores into the 800’s it is not needed to get a great loan.  Having a score in the upper 600’s will still get you great options, and in many cases perhaps even the same loans as those that are in the 800’s.  If you can keep your score between 680 and 720, you are doing great!


It’s important to manage your credit carefully.  Before you decide to “fix” your credit, be sure to call your Loan Officer with Capital M Lending for guidance.  In some circumstances when you try to “fix” your credit, you may actually damage it!  Don’t make that mistake; consult with your loan officer before doing anything.


Tips to having a good credit:


  • Pay everything on time, all the time

  • Don’t ever let anything get to collections

  • Don’t continue to open new accounts.  Both having inquires into your credit and having new debt can begin to lower your scores.

  • Keep accounts open for years, paying on them regularly.  And no, we don’t mean keep a running balance on accounts where you are charged interest.  We are simply saying keep the same accounts open, using them only when you need to.

  • Don’t max out your cards.  By borrowing below 30% of your available credit limit you will keep your score much higher

  • Have credit!  By no means are we saying just run out and get a credit card you don’t need, but having some credit will establish your “credit history” giving you a score.

  • Try not to get furniture store or finance company credit cards.  In many cases our sources tell us that using cards from these sources can have a negative effect on your score.

  • Don’t obsess on your credit score!!  Trying to always make your score better may actually hurt it.  And don’t forget, your credit score is a “living, breathing thing”; it will get better and worse throughout your entire life



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