The basis of most mortgage lending is credit scoring. In general, the higher a person's credit score, the lower his offered mortgage interest rate. Despite the many credit scoring models in use today, however, just 3 are relevant to American homeowners:
- The Equifax BEACON® score
- The Experian Fair Isaac Risk Model
- The TransUnion EMPIRICA®
Generically, these scoring models generate what are commonly known as 'FICO' scores. FICO scores are measurements of probability.
The higher a person's credit score, by definition, the less likely a person is to default on his home loan.
This is one reason why credit scoring has added importance lately -- mortgage lenders are very careful about what they're lending and to whom. Notably, minimum FICO thresholds have been added to all types of mortgage loans. FICO scoring has 5 main components as listed above.