Freedom Financial

Your Credit

Years ago credit used to be evaluated on an individual basis. It was much easier to spend the time to review each credit report when the volume of mortgage loans actually underwritten and closed was much less than it is today.

In order to handle the large volume of transactions being processed and closed, it was necessary to automate the underwriting process. An important part of the automation process is the quantifying of a person’s credit history. This was accomplished with the advent of “credit scoring.”

We have all heard of a FICO score, named after the company that invented the most popular credit scoring system, Fair Isaac Company. Each of the three bureaus has a slightly different scoring system.

Experian – FICO
TransUnion – Empirica
Equifax – Beacon

Credit scoring gives not only a number that represents your “credit score”, but also quantifies credit by various “factors.” These factors allow the automated underwriting systems to pinpoint risk areas that are not readily known by just looking at a number. Some of these factors can be:

Proportion of balances to credit limits is too high
Too many new accounts
Derogatory public record or collection filed
Time since delinquency is too recent or unknown

There are many more factors that can appear, this is simply a sampling.

Credit scores have become the most important factor when it comes to credit. For the average person, the following is helpful to maximize your credit score:

Always pay your bills before they are due.
Don’t open a lot of finance company or department store accounts.
Don’t use more than 30% to 50% of any credit card’s credit limit.
Regularly review your credit report for accuracy

The best way to assure your credit is at it’s best is to have a professional, such as a Freedom Financial Loan Officer review your credit report with you. If you are planning on purchasing or refinancing a home, your Freedom Financial Loan Officer can help you prepare to purchase a home by reviewing your credit report and making suggestions on how to improve it. Call your Freedom Financial Loan Officer at 800-479-0805 to make a complimentary appointment.