FICO credit scores are used by most lenders to determine credit risk and the interest rate that borrowers will be charged. Your clients have three distinct FICO scores from each
of the three credit bureaus — Experian, TransUnion
Understanding the components of your client’s FICO
score will allow you to convert your dead leads into
constant revenue generators. Telling your client their
FICO score is too low to secure funding should never
be your last point of contact with that individual.
As a commercial mortgage broker, you know there is
no shortage of nonbankable and hard-to-fund clients.
There is, however, a shortage of brokers willing to offer
their time and knowledge to a client who isn’t fundable now but may be in the near future. By understanding the five major components used to determine your
client’s FICO score, you will become a resource for your
client beyond their current funding needs.
Applying the sweat equity to build and nurture a
relationship can prove to be more lucrative than neglecting your dead leads. Consider the potential for
future transactions and referrals from your client that
you would have other wise let walk away.
Your client’s payment history is the most important
variable in their FICO score, which was pioneered by
Fair Isaac Corp. Payment history comprises 35 percent
of the overall algorithm formulated by FICO to calculate your client’s overall credit score. This is because it
is believed that long-term payment behavior can be
used to project future repayment of loan obligations.
The three credit bureaus factor in both revolving
credit and installment loans when calculating the
payment-history portion of your client’s credit score.
Revolving credit is considered credit that is not issued
in a predetermined amount. Examples include credit
cards or a home equity line of credit. Installment loans
are loans that are repaid in fixed monthly amounts and
the borrowed sum doesn’t change over time. Examples
include mortgages and auto loans.
Mortgage lenders will give your client’s installment-loan repayment history more weight because mortgage
repayment will be of significant interest to the lender.
In fact, in some cases, lenders will still extend terms to
clients with a less-than-desirable FICO score due to derogatory marks on revolving credit accounts, as long as
installment-loan accounts are paid back on time.
Although the ill effects of late loan payments stay
on your client’s credit report for several years, the
easiest way to positively affect this portion of their
credit history is by ensuring future payments are made
on time. Alternatively, your client has the option of
contacting the creditor or credit bureaus directly to
Close More Loans
by Becoming a FICO Master
Understanding the factors that can improve a client’s credit
score improves your value as a broker
By Lukas Bull
dispute these delinquencies, but results may vary, and
this option should only be exercised if there is a genuine
mistake on your client’s report.
The second most important component of your client’s
credit score is their credit utilization — or the ratio of
their credit balance to their credit limit. Credit utilization comprises 30 percent of your client’s credit score
Lukas Bull is a credit analyst with Prime Commercial
Lending, located in Albany, New York. He works with an
ever-growing network of brokers to advise and facilitate the
transaction of permanent commercial mortgages ranging
from $100,000 to $5 million, with unique programs for both
investors and business owners. Reach Bull at (866) 708-4755
or email@example.com. Continued on Page 38 >>
At a Glance
The major elements of a FICO credit score