New News on FICO Scores

Many of my columns have been about working on one’s FICO score. However, there is some good news for those who haven’t taken any of the advice previously given. The FICO score created by the Fair Isaac Corporation to rate consumer’s use of credit and to give an idea to  lenders about the risk associated with those applying for credit is being de-emphasized by some lenders.

There are over 200 million U.S. consumers with associated FICO scores that have been connected to the processing of applications by credit-card and loan companies. The importance of the FICO score relates to the amount a loan or credit-limit might be set as well as an opportunity for a lower interest rate that a consumer is eligible.

Some well-known names in lending like JPMorgan Chase & Co. and Bank of America Corp as well as Capital One are moving away from the scores and placing less importance on them. Advocates for not using the FICO score say that not using the score gives greater access to affordable credit.

For communities like Vancouver and the Greater Clark County region, there are good predictors of those who have prepared to obtain a home loan beyond the FICO score. For those persons who have not borrowed much and do not have a score, this is an opportunity to learn how to develop credit in a way that will assist their efforts to obtain a home loan.

You should know that FICO scores are still being requested by lenders according to Fair Isaac Corporation. The 16 billion dollar company obtains about 40 percent of its revenue by equating the score for underwriting purposes. In fact, many companies that are not relying fully on the FICO score are simply placing the score in the consumer’s file as a record.

If you have been utilizing credit and are not new to having a FICO score, you likely know that scores typically range from 300 to 850. An individual score is based on payment history, the amount of overall debt versus the amount of debt originally borrowed on each loan or credit card as well as how many times a person has applied for credit.

My article last month included new information about student debt which has caused some problems for the FICO score since deferments and forbearance programs are not necessarily reflected in the score. The newest change to move away from a dependence on the FICO score is that relationships are gaining an importance when credit is being obtained.

How do you develop a relationship with your lender? The importance of understanding what is necessary to obtain a home loan with a trusted loan advisor is still the best way to begin the journey to home ownership.

Know your options. Know your lending opportunities. Know the resources within your community.

Be sure to get to know a licensed advisor that you know serves your community and will be there for you for the duration. Call 360-607-9312 or email MPattullo@FinanceOfAmerica.com for help preparing your credit application to best evaluate your mortgage options. We are your local advisor.

We lend where we live,
Mike