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Credit Bureaus and Credit Scores - How They Work Together

Posted by GO Mortgage Team on 1/18/19 8:55 AM
GO Mortgage Team

Your credit score is a major factor that will be considered by a lender when they review your loan application.  The lenders want to know what your credit history is and whether you have the ability to pay back the loan you are requesting.

 

Good credit translates into lower rates or fees for the homebuyer and less risk to the lender. Credit scores can range between 300 to 850. The higher the client’s score is, the less likely they are to default on their loan. 

  • What is a credit score? It is a number that, at a glance, helps lenders determine how likely you are to make your proposed payments on time.
  • How is it generated? A score is created when someone’s credit file is pulled from a credit bureau. Information such as outstanding credit, credit history, and past payments is put through a complex mathematical formula to generate a three-digit number.
credit score numbers
  • What is a credit bureau? There are three major national credit bureaus: Experian (XP), TransUnion (TU), and Equifax (EF). Their functions include:
    • Repository - they are huge “holders” of data; information about you and millions of other people.
    • Credit Reporting Agency (CRA) - these “repositories” get their data when creditors and courthouses “report” to them; and when you pull someone’s credit report, they in turn “report” that data to the entity that requested the information.
  • Why are scores different? There are two different scoring models used by the majority of lenders to determine credit scores, Fair Isaac Corporation (FICO) and VantageScore.
    • The FICO Score is a proprietary model created by Fair Isaac Corporation (FICO) and is the model used by most lenders to determine mortgage loans.
    • Fair Isaac sold their original formula to the three credit bureaus, who slightly altered them based on their own studies and analysis to create the VantageScore.

Besides the different scoring models used, the three bureaus typically don’t have the exact same data on a consumer. So, if the data is different or has changed, the scores will also be different.  It’s important to review your credit report yearly and confirm the data the bureaus have for you is accurate.  

 

For additional information and tools to help improve your credit, speak with a GO Mortgage Home Loan Advisor today.

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Topics: FICO score, credit monitoring, credit report, credit score, Vantage score

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