Credit Scores are a controversial way of representing specific aspects of human behavior. The idea that a number can “represent human behavior” can be misleading sometimes, while other times, it is a good indicator. Whether or not an individual cares what their score is an indicator of behavior when it comes to credit. With human behavior, there are so many variables other than a number and a report.
FICO scores are used to establish minimum requirements for loan programs as well as the interest rate available. If a program requires a minimum score of 660, someone with a 700 or 800 score does make a difference.
There are large numbers of people who have not been taught the importance of the score that lenders use to make a home loan decision. First of all there are different types of “credit scores”. Lenders use the Fair Isaac score, known as FICO. ….then there are other scores. When a consumer requests or pays to get a credit score, they should make sure it will be a FICO score, the type of credit score lenders use to make decisions about home loans. Generally, lenders use the middle score of the 3 scores provided by the 3 credit agencies; Experian, Equifax and Transunion. Sometimes lenders will utilize an internal scoring system that considers the FICO score in addition to other variables, such as assets or existing banking relationships. Often, this internal scoring is tied to specific lending programs……in which case the FICO score is not the only determining factor.
Ways the FICO score can affect the decision:
LOW SCORES – 679 and lower
This category is tricky because there are different tiers involved with what is considered low:
679 – 660 / 659 – 640 / 639 – 600 / under 600…………..lending programs may require a minimum within these ranges. If a program requires a minimum of 660 for standard features, a higher score may not make any difference or it may offset a weak factor in the application profile.
Upfront, the representative may not process the application for credit and discourage it based on the company requirement, program guidelines, or their personal feelings. The loan officer position, at major banks) evolved into a commissioned-based job, so they may not give the low scoring applicant any attention or guidance at all. They simply move onto some who has a higher score. Despite Fair Lending laws, people still interject their personal feelings sometimes. Sometimes an applicant may permit a viable credit explanation to support a lower scores in the 620+ range.
There will always be lenders willing to lend to lower credit score applicants, at a price.
Applicants might be prioritized by the loan officer and the processor before it gets to the underwriter. They don’t want to waste time dealing with low scoring applicants because there is less opportunity to make money quickly. The company might discipline the employee(s) a)for submitting an application that does not meet minimum FICO scores, and or b) spending company time and resources on “fixing a credit score” vs. seeking applications that do meet the minimum requirements, therefore saving the company time and money.
The best thing for someone to do that has a low FICO score is to try to fix it themselves working directly with the creditor and all 3 credit agencies. Otherwise they could fall victim to paying
someone hundreds of dollars to fix something they could have done for themselves. It is wise to contact government approved agencies and/or licensed individuals when deciding to pay for help to improve credit scores.
In some cases, a FICO score can be increased by doing small, but significant adjustments or corrections related to credit. The factors that have contributed to the low score make a difference in the remedy to increase the low score. The approach will vary from case to case.
MEDIUM SCORES
What happens with a medium score will depend on the communication with loan officer if there are opportunities to increase the score if needed. For example, there might be a glaring error on the report that caused the score to not be higher, but the loan officer has to be savvy enough to notice it and willing to help the borrower fix it prior to submission of the application to underwriting. Medium Score = medium interest rates……680 – 700. Generallly, FICO scores in this range will pay a bit of a premium in loan points and/or interest rates. The amount of the premium depends on the lender. The loan to value ratio might also be restricted in terms of FICO score and mortgage insurance may or may not be available or cost more for minimum down payments.
HIGH SCORES
A FICO score of 700 and above will receive best treatment, priority and interest rates.
With a 50%+ error percentage, FICO scores should be examined by the consumer before entering into house loan transaction. Lenders can assist, if the source is willing and the consumer should not be charged for it. Most loan officers are focused on originating loans that meet minimum credit standards; it is secondary to invest time in helping someone fix their credit which varies widely. The amount of work required and or invested may not yield a timely result that makes sense.
The credit re-score process is extremely convoluted. You could be subject to reading several pages of instructions/steps to take, which could inconsistent with creditor requirements. For instance you cannot request a rapid rescore if you have already entered into a dispute with the credit agency. Many of the steps involve a 60-day wait. To complicate the process further, each creditor has their own style of dealing with disputed information reported by them….Frequently, the creditor’s process conflicts with the requirements of the re-score process of the credit agency.
©2014 Carolyn Davis