Credit Scores Explained

All loans must have a credit report to determine a borrower’s credit history. This report is to determine someone’s credit history and willingness to pay their debts. This information tells the lender the risks of giving you a new loan. The mortgage industry has experienced a shift in credit reporting that involves not only looking at a borrower’s credit history, but also the borrower’s credit scores. A credit score is simply a statistical tool to assess a borrower’s likely future performance. This is accomplished by applying variable weights to certain features on a credit report that have value in predicting future behavior. A statistical analysis is applied to those values ​​and used to calculate a risk score.

In today’s mortgage world, most investors require at least one FICO score, but most require three credit score scores. Scores are new to traditional home mortgage loans, but have been in use since the 1950s in auto financing, the personal finance industry, and credit cards. Risk scores are generic models developed in conjunction with the three major credit repositories: Experian does the FICO score, Equifax does Beacon, and TU does Emperica. The bureaus provide access and delivery of scores to lenders with the actual credit report. As an industry, mortgage lenders refer to this group of credit score codes as the FICO score. A minimum score of 620 is required for any conventional loan underwritten per FNMA and FHLMC guidelines. Scores below 620 must pay extra points at best or use non-compliant (subprime) investors. The best mortgage rates and highest loan-to-value values ​​are available only for high credit scores. ( 700 + ) Borrowers in bankruptcy, open collection accounts, late payments, higher than average balances on open accounts, liens, judgments, old collection accounts, or other derogatory credit of any kind must be evaluated and placed with the appropriate investor . A determination must be made at the start of the application by obtaining an In-File Credit Report for a fee of $18.00. In many cases, an In-File will suffice; however, if a full report is required, the cost will be approximately $55.00, which includes a complete update of all credit accounts.

If a borrower has a good credit history and a good credit score, they are generally placed in an A-paper (Prime) category. With less than excellent credit or a low credit score, the borrower may fall into categories ranging from A – to B, C, and D. Interest rates for categories below “A” are higher and usually require a down payment. greater initial or more equity in the home. Whenever a borrower’s credit appears bruised, we give them a copy of our Credit Repair Letters to begin the process of cleaning up their credit. This can even be the case with good or excellent credit, as an estimated 96% of credit files have errors. If credit cannot be repaired immediately, the strategy is to place the client on a Band-Aid loan. This helps a borrower by getting a loan for two or three years while good credit is re-established. Once cured, we refinance them into an “A” product for a better rate. Just five years ago, these loans weren’t even available. Now we can help people that we couldn’t before. This requires some planning and coordination, but the results are often phenomenal.

Credit Bureau Risk Score Factor Reason Codes
(The numbers are the codes shown on your report)

The amount owed on the accounts is too high ( 01 )

Level of delinquency in the accounts ( 02 )

Very few revolving bank accounts ( 03 )

The ratio of loan balances to loan amounts is too high ( 03 )

Too many bank or national revolving accounts (04)

Lack of information on recent installment loans ( 04 )

Too many accounts with balances ( 05 )

Too many consumer finance company accounts ( 06 )

Account payment history is too new to qualify (07)

Too many questions in the last 12 months ( 08 ) (Watch out for this one, it can ruin your score while shopping for a car or a mortgage.)

Too many recently opened accounts ( 09 )

The ratio of balances to credit limits is too high in a revolving bank or other revolving accounts (10)

The amount due on revolving accounts is too high ( 11 )

Revolving accounts establishment time ( 12 )

Time since delinquency too recent or unknown ( 13 )

Time of establishment of the accounts ( 14 )

Lack of recent bank revolving information (15)

Lack of recent information on the revolving account ( 16 )

No recent non-mortgage balance information (17)

Number of delinquent accounts ( 18 )

Very few bills currently paid as agreed (19)

Date of the last consultation too recent ( 19 )

Time span from public record or derogatory collection is too short (20)

Amount not due in accounts ( 21 )

Serious delinquency, derogatory public record or collection filed ( 22 )

Number of revolving bank or national accounts with balances ( 23 )

No recent revolving balances ( 24 )

Settlement time of installment loans (25 )

Number of revolving accounts ( 26 )

Number of revolving bank accounts or other revolving accounts (26)

Number of retail accounts ( 27 )

A few bills currently paid as agreed (27)

Number of accounts established ( 28 )

No recent bank card balances (29)

Date of last consultation to recent ( 29 )

The time since the most recent account opening is too short ( 30 )

Very few accounts with recent payment information ( 31 )

Amount owed on delinquent accounts ( 31 )

Lack of recent installment loan application ( 32 )

The ratio of loan balances to loan amounts is too high ( 33 )

Amount owed on delinquent accounts ( 34 )

Overdue payments on accounts ( 36 )

Length of time open term loans have been established relative to length of consumer history ( 37 )

Serious delinquency and public record or archived collection ( 38 )

Serious crime ( 39 )

Public file or archived repeal collection (40)

No recent retail balances (41)

Time elapsed since most recent consumer finance company account was established ( 42 )

Lack of recent information on mortgage loans ( 43 )

Balance-to-loan-amount ratio on home loans is too high (44)

Very few accounts with a balance ( 45 )

Number of inquiries from consumer finance companies ( 47 )

Lack of recent retail account information ( 50 )

Amount owed on retail accounts ( 56 )

Lack of recent information on car loans (97)

Time to establish loans from consumer finance companies (98)

Lack of recent information on auto loans (98)

Lack of recent information on car financing loans ( 98 )

Lack of recent information on the account of the consumer finance company ( 99 )