What are credit scores?
Your credit score is an important number provided by one of the three major credit reporting agencies. It is generated using a formula that compares information contained in your credit report to the information the credit bureaus maintain on millions of other people. The number that results---your credit score--- is a prediction of how you will pay your bills.
All home mortgage lenders, and most other creditors, use credit scores as one factor to determine whether or not to extend credit to you and what interest rate you will pay.
Although credit scores may not seem important, they are used extensively, and not just by home mortgage lenders. The interest rate you pay on your car loan, credit cards, and any other credit extended to you is also affected by your credit score. Individuals who have the highest credit scores usually receive the lowest interest rates, while individuals with lower credit scores often receive higher interest rates. Even the rate you pay for auto insurance is often affected by credit scores. Therefore, your credit score can either save you ---or cost you--- hundereds or thousands of dollars.
Lenders use many different credit scoring models to determine whether or not to extend credit to you and at what interest rate. One model, the FICO, uses a scale that runs from a low score of 300 to a high score of 850. Although the vast majority of people will have FICO scores between 600 and 800, a score of 720 or higher will get you the best home mortgage interest rate.
According to Fair Isaac, the company that developed the FICO score, the credit scores of the American public break out along the following lines:
|499 and below||2 percent|
|800 and above||13 percent|
Each of the three major credit bureaus uses its own scoring method -- Equifax uses the BEACON score, Experian uses the Fair Isaac Risk Model, and TransUnion uses the EMPIRICA score. Scores vary between the bureaus because different formulas are used for each scoring method. In addition, the data contained in individual credit files often vary among the three credit bureaus.
Your credit score affects whether you will get credit or not and how much interest you will pay. Therefore, no matter which score or scores your lenders uses, it pays to have high credit scores.
Although credit reporting agencies are required to provide two (2) free credit reports per year to Georgia borrowers, they charge a fee if you wish to obtain your credit scores from them. However, Peachtree Mortgage Services, Inc. provides a copy of a merged credit report, including the three (3) credit scores, to all customers during the home loan approval process or at closing.
Georgia Residential Mortgage Licensee #7359
National Mortgage Licensing System & Registry (NMLS) # 133589