Today we are excited
to have Nabil Captan as our guest blogger. Nabil is a nationally recognized
credit scoring expert, educator, author and producer. In today’s post, he
explains how what you don’t know about your credit score could end up costing
you. Enjoy! – The KCM Crew
Informed consumers considering a
home purchase today want to do the right thing and plan ahead. Many do not seek
immediate professional guidance from a Realtor or a mortgage loan officer.
Instead, they hunt for hours online, looking at numerous websites for available
homes for sale. They also consult websites to find the best interest rate and
terms for future monthly mortgage payments. Many consumers feel betrayed,
cheated and at times embarrassed to learn that the credit scores they
counted on, to get that specific interest rate for their loan, are not used by
mortgage lenders.
When shopping for a good mortgage
interest rate, consumers also need to know their credit score, and utilize an online
mortgage calculator to compute future monthly mortgage payments. A Google
search for “credit score” will yield hundreds of results. The consumer accepts
the provider’s terms and conditions to get a free credit
score. Terrific! Unaware that in exchange they just received a meaningless
credit score that lenders never use. They also handed over their
Non-Public Personal Information (NPPI) to that credit score provider for life.
Before we go any further, let’s look
at available credit scoring products available to consumers today:
- FICO credit score from Fair Isaac Corporation/myfico.com, range 300 to 850
- Plus Score from Experian, range 320 to 830
- Trans Risk Score from TransUnion, range 300 to 850
- Equifax Credit Score from Equifax, range 300 to 850
- Vantage Score from all three bureaus, two ranges, 300 to 850 and 501-990
What
is a FICO Score?
In 1958, Bill Fair and Earl Isaac, a
mathematician and engineer, formed a company in San Rafael, California. They
created tools to help risk managers make a better decision when taking
financial risk. Today, 90 percent of all lenders use the FICO score,
first created in 1989 by Fair Isaac, and it’s the only score
Fannie Mae and Freddie Mac, the Federal Housing Agency and Veterans Affairs
will accept in underwriting loans they guarantee.
What
is a Consumer Score?
The three credit bureaus, in their
understanding of the credit scoring model created by FICO, decided to create
their own scoring models, and in 2004 – 2006 they unveiled the “consumer”
scores: Plus Score, Trans Risk Score, Equifax Credit Score,
and Vantage Score. However, these are not genuine FICO scores, and
mortgage lenders don’t use them. Consider this comparison: Would you
buy a watch that gives the approximate time of day?
The three credit bureaus work with major
financial institutions, professional organizations, comparison sites, personal
finance businesses, clubs such as Costco, AAA, Sam’s Club, and many data-mining
brokers to bombard consumers in the race of the free credit score mania,
all with the enticement of a “consumer” score that is not used by lenders, in
hopes of obtaining subscriptions or fees from consumers. Fees that are totally
unnecessary!
Know
Your Score
Gaining access to one’s own credit
report and credit score prior to loan approval with no strings attached could
be helpful, and at all times beneficial. With little effort, inaccuracy of
information can be instantly corrected at the credit bureau level, and with a
few simple steps, credit scores could be enhanced. For example, paying down revolving
account balances before a creditor’s statement-ending date (the creditor later
updates account information with the credit bureaus), thus reducing revolving
account balances at a particular point in time, will positively add more points
to a score. It’s priceless.
More
Information
Consumers have a legal right to
access their annual credit report at no charge once a year from
annualcreditreport.com, a site sponsored by the three major credit bureaus:
Experian, Equifax and TransUnion.
These reports provide all the basic
consumer data, but do not reveal a credit score. If you have a need for the
FICO credit score that is actually used by mortgage lenders, myfico.com
is the website to visit. For $19.95 per bureau, consumers can purchase a
customized credit report with a genuine FICO score.
Additional websites to visit: the
Federal Trade Commission (ftc.gov) and the Consumer Financial Protection Bureau
(cfpb.gov) for true answers to questions about any financial concepts,
financial products, dispute and complaint submissions, and much more.
Today’s
homebuyer has instant access to answers. To be relevant in today’s market, real
estate professionals need to know the absolute correct response to basic credit
questions. It’s important.
Copyright 2014 Nabil Captan, Captan
& Company. All rights reserved.
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