The Fair Isaacs Corporation still refuses to explain the details that inform their credit score tabulations, but representatives of the company have recently divulged the main elements which move the ratings up and down. Specifically, though this should not come as any great shock, the primary element of FICO scores remains a positive history of repaying debts on time each month. In fact, timely repayment counts for more than a third of the total FICO credit score calculation at thirty five percent. Just behind, though, at thirty percent, is the ratio of debt to income, which should also need no explanation. However, one thing that most borrowers never truly think about in most cases is the length of time that a credit account remains open.
Indeed, many modern American consumers pride themselves on continually transferring credit card debt balances in order to receive the minimal introductory rates so often available, and, after moving the debt toward another card to take advantage of the negligible interest, they simply close the old account without thinking twice. The length of time in which the oldest debt accounts have been around, though, will factor into the FICO credit scores by as much as fifteen percent. Indeed, the overall level of activity – starting and ending credit accounts without clear reason and, particularly, applying for new sources of debt without success – has another ten percent worth of importance. Finally, the exact sort of debt (secured debt, like auto loans or home mortgages, has a clear advantage over unsecured debt such as would be offered by credit cards or lines of credit) could tip scores another ten percent, though beyond these vague parameters it’s all mere guesswork.
Not only are FICO credit scores essentially impossible for the ordinary individual to calculate, every one of the three main credit bureaus – Transunion, Equifax, and Experian – will compute a distinct and noticeably different FICO score based upon their divergent data. Even the answer to what makes a good credit score will differ from loan officer to loan officer. For home mortgages, the rule of thumb continues to be that mid scores – that is, the median FICO score of the three credit bureaus, after the high and low scores have been disregarded – over 640 will entitle borrowers to the best possible rates. Still, should such other characteristics as equity or income (especially in relation to debt) be above reproach and should the delinquencies on the credit report be focused around a specific period of time for which the borrowers have an exceptional excuse, scores could be as low as 580 and still attain the best interest rates available.
Conversely, if there are income issues to be overcome as part of the loan application, the credit score might need to be over 700 in order to garner the same scores. Government lenders like Fannie Mae will ordinarily be less adaptable concerning credit scores under 640, but there’s always some wiggle room so long as the loan officer knows his or her field. Still, once the middle credit score goes beneath 580, the borrowers will almost definitely have to investigate the sub prime lenders. The entire sub prime industry has undergone a wholesale transformation over the past few years, but Americans with low credit scores should still be able to find financing so long as their income and equity are in order (and the borrowers accept significantly higher interest rates).
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