Indianapolis Area Real Estate Blog

Real Estate Terms - FICO

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. 

Payment history and credit capacity are two of the largest pieces, but a myriad of other factors contribute to a credit score, too.  For example, the longer your reported history of managing credit, the more favorably your credit score will respond.

The website does a terrific job with credit education, explaining in plain language the ins-and-out of credit scoring and ways to boost your score.  It also makes a free, 20-page PDF available for download.  Whether you're a homeowner or lifetime renter -- consider it required reading.

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