Colorado mortgage lenders place a substantial weight on the FICO scores for credit applicants. Although they may decide to lend money to someone with mediocre FICO scores, that person will most likely pay a higher interest rate for the Denver mortgage. Buyers wanting to engage in a Denver, Colorado real estate search in the future--from Arvada, Aurora, Littleton, and Cherry Creek to Lakewood--would do well, then, to boost their FICO scores as much as possible before applying for a loan for that nice Denver home.
Various remedial and preventive measures—such as paying bills on time, eliminating extraneous credit inquiries, and paying down debt— will ensure higher FICO scores when they are needed to purchase real estate in Colorado.
Who comes up with FICO scores? There are three recognized credit bureaus that gather credit information and use unique models to come up with the FICO scores. They are Equifax (formally CBI) using the Beacon model, Trans Union using the Emperica model, and Experian using the FICO model. It was actually Fair, Isaac & Co. (FICO) who pioneered the credit-scoring movement in the late 1950s to provide lenders with a reliable means to evaluate credit applicants. The FICO score is an attempt to condense a borrower’s credit history into a single number. The Federal Trade Commission has sided with the companies’ need to keep the methods confidential.
Scores range from 375 to 900, with higher FICO scores being the best. If a buyer wants to get the lowest interest rates, then he should shoot for a score of at least 680 which is considered to be “A” credit. Scores below 620 are considered to be subprime and generally mean the borrower will pay higher interest rates. Between 620 and 680, lenders will look at other factors such as income, assets, and employment to decide upon a grade for the account.
Rankings range from A+ through E as follows:
A+ is 680 and above with a debt ratio of 36 and a maximum LTV of 95. Most accounts are current but there is possibly a revolving account or two that may have been 30 days late. At 660 the FICO is A- with a debt ratio of 45 and possibly a couple more late payments.
A grade of B is assigned to those with a FICO score of 620. They debt ratio is higher (50) and maximum LTV of 85. These people may have a late mortgage payment and several late payments on record.
Then comes “D” for those with 580, a debt ratio of 55 and maximum LTV of 75. They may have 4 late mortgage payments and even more late accounts. Likewise a “D” is assigned to those with a 550, debt ratio of 60, max LTV of 70 and with 30 to 40 late payments. And finally, “E” for those with a credit score of 520, debt ratio of 65, maximum LTV of 60 and as many as 60 late payments registered by other lenders.
There are no “F” failure grades, hopeful for everyone who has found themselves in the debt ditch of life. Everyone can call a tow truck, discipline themselves, chip away at old debt, and make the lifestyle changes necessary to get back on track.
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