What is a credit score?

“If winning isn’t everything, then why do we keep score?” Vince Lombardi

A credit score is a number that represents the statistical probability of you becoming delinquent on loans extended to you. Credit scores range from 300 to 900, with the majority of scores falling in the range of 500 to 750. Credit scores were developed by a company called Fair, Isaac &1 Company (FICO).

The scoring models created by FICO take all the detailed information contained in your credit report and produces your credit score using different weights and factors contained in the FICO scoring models. This results in a credit score which is used by the lender.

Fair Isaac has its roots in risk assessment. The first purpose of the FICO score is to show how likely you are to become at least 90 days late in making payments in the next 24 months based upon patterns in your credit history, compared with patterns of millions of past consumers.

The general scoring range is 350-850. Fair Isaac divides the scoring range into five risk categories:

780-850 Low Risk
740-780 Medium-Low Risk
690-740 Medium Risk
620-690 Medium-High Risk
620 and Below High Risk or "sub-prime"

Many years ago, Fair Isaac reviewed hundreds of thousands of credit reports on consumers that had no delinquency on their credit reports and compared them to hundreds of thousands of consumer credit reports that had delinquency on their files. By doing this Fair Isaac was able to determine many factors that existed on credit files that were very strong predictors of a consumer's future ability to repay a loan.

Each of the three major credit bureaus uses their own proprietary version of the FICO credit scoring model. Each of these models are updated by Fair Isaac from time to time to improve their predictability.

Fair Isaac said as of early 2004, this was how US consumers' FICO scores were distributed nationally:

800 or higher 11 % *750-799 28%
700-749 19%
650-699 16%
600-649 12%
550-599 8%
500-549 5%
499 and under-l %

With Fair Isaac's estimates, almost 60 percent of U.S. consumers are qualifying for topnotch credit, with credit scores of 700 or above.

Today, most loan decisions use credit scoring models to determine eligibility for credit, interest rate, terms, down payment amounts and other terms of the loan. Automated Underwriting systems today are responsible for our national credit industry's ability to quickly and efficiently speed the decision making capability for hundreds of millions of loan decisions each year. Because of this millions of Americans can buy homes, cars and your credit report on a regular basis.

-Analysis provided by Birchwood Credit

If you or someone you know is considering either refinancing or purchasing a new home, now is the time to research your options and speak with a professional mortgage planner.

Often times, a negative loan decision can be avoided by choosing the right person to assist you. In times like these, it takes more than good credit to get the right loan program, it takes knowledge and experience. My goal is to provide new and existing homeowners with the information they need to make an informed decision, I learned a long time ago that if you act in the best interest of your customer, you won’t ever have to worry about keeping them.