Jim’s Mortgage Corner | Real estate




There are over 50 valuation models in use in the financial industry today. There are FICO valuation models for cars, mortgages, installment loans, credit cards, personal finance, and even general valuation. Besides FICO, there are Vantage scores and other proprietary credit rating models. The type of funding you are applying for (car, mortgage, etc.) Determines the acceptable purpose or valuation model that the financial institution will or should use.

So why are there different scoring models? Each scoring model will prioritize the information in your loan file depending on what you finance. When you apply for a car loan, the score will make a bigger difference to the history of any previous auto loans you have on your loan file. The same will apply when applying for a credit card, with more emphasis on how you use your existing credit cards and payment history.

Mortgage credit scores can vary from credit bureau to credit bureaus as they each have their own scoring models (TransUnion FICO Classic 4, Equifax Beacon 5.0, and Experian / Fair Isaac Risk Model v2). In addition, creditors are not required to report to a bureau, and some may only report to one or two bureaus. Many collection agencies will only report to one bureau, which can significantly affect one score, while the other two will be higher. Finally, most lenders do not report to the bureau at the same time of the month, which can also affect your bill in different ways, especially if you pay your credit cards monthly.

FICO has released new credit scoring models many times over the years to keep pace with changes in consumer credit behavior. Banks, credit unions, mortgage lenders, etc. It may take several years to transition to the current FICO scoring model, which could lead to different scoring models used by each lending institution. FICO 09 is the most recent scoring model released by FICO. While most banks, credit unions and credit card companies use this new pricing model, Fannie Mae and Freddie Mac have not adopted the new pricing model. This is important to know because Fannie Mae and Freddie Mac play a significant role in the mortgage industry. For this reason, your FICO score may be higher when applying for a credit card or car loan compared to a mortgage. For example, FICO 09 ignores small fees below $ 100, carries less weight on medical debt, and does not factor paid medical debt into your estimate. If you are currently renting a rent, your landlord can report rent payments to the credit bureau, then those payments and payment history will also be factored into your assessment using FICO 09.

Due to the different scoring models, your personal score (what you see when you are given a free score with your credit card, bank account, etc.) may be 50-100 points higher than your mortgage rating!

I mentioned in my previous articles about the need to check your credit report annually through www.annualcreditreport.com… You can also purchase your own credit score from the same site; however, these are personal estimates that are not commonly used by any industry. I like to call them good grades.

Currently, the only way to determine your mortgage rating is to apply for a mortgage, be it a purchase or a refinance.

The good news is that all scoring models follow the same basic rules, which are to pay bills on time, keep credit card balances below 30% or below, keep existing accounts open to maintain a payment history, and only open new accounts then. when needed.

By following these basic rules, you can maintain a good FICO score no matter which model is used.

Branch Director, NMLS No. 1721861

Cherry Creek Mortgage, LLC, NMLS 3001


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