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What is a "good" credit score?

Credit scoring is relatively new to the finance game. Until just a few years ago we looked at credit history and made risk decisions based on payment patterns and current credit exposure. Along with the new era of data management in combination with heuristics, weighted points and algorithms came credit scoring. In a nutshell credit scoring computations are based on the same things we used to look at manually but come up with a number representing risk. They are not 100% foolproof and not always 100% accurate in portrayal but they are the closest thing we have for now.

In our office when we “pull” credit and we see the score we always still look at the credit history to see why the score is what it is. In fact most people do not realize this but we often discover things like duplicate reporting or reporting of a creidt history which is contradictory of the truth. Another thing most people do not realize is that most mortgage companies do for applicants for free what the “credit repair companies” do for a fee. We have always offered credit score counseling, recommendations and assistance to our applicants with no additional charge (not any that comes to us).

There are three credit reporting agencies that we use: Trans Union, Equifax and Experian. You will very often hear real estate agents using the term FICO. FICO is the Experian credit scoring model developed by Fair Isaac. FICO is not the only credit scoring model but all credit scoring models use the licensed FICO algorithm. Equifax uses the Beacon score and TransUnion uses the Empirica score. So while FICO would like for them to all be called FICO scores -they are not. I write this only for clarification purposes.

Each credit reporting bureau also has its own range of scores: Equifax scores 300-850, Experian scores 330-830 and TransUnion scores 150-934. The average of all scores in America as of 2005 was 678 -surely we need updated information on this!

Most lenders today look at the middle score. It doesn’t matter if it is the FICO, the Beacon or the Empirica -just whatever the middle number is. For example if you have a FICO of 736 an Empirica of 656 and a Beacon of 679 then your middle score is 679 and the other two scores don’t even count. There may be some lenders who will still average the three scores. So for that example it would be 736 + 656 + 679 = 2071 / 3 = 690 -but I do not currently know of any lenders who do this. We did when we were Novastar Home Mortgage. There have also been lenders who would disregard the lowest score and average the two highest but I have not seen this lately.

As indicated earlier scores are determined based on available credit, credit payment history and negative factors such as judgments, liens and foreclosures. A “good” credit score would be considered of anything 680 or above and a better score is from 720 and above. Most lenders stop all risk assessment for the majority of their loans for anything 720 and higher. Some lenders will allow an exception of a point or two if other factors mitigate risk like higher income or more assets.

In the end never do what other people do and assume you know whether or not you are going to qualify for a loan. The best thing to do is shop. With the changes in the Fair Credit Reporting Act you will not be penalized for shopping for a loan like you once would have been. Call a professional and please consider me and my team since I take the time to educate people I don’t even know through venues just like this.