Mortgage Myth Busters

FICO, BEACON and EMPIRICA - why care?

As a prospective home buyer or real estate agent it will pay you to be aware of the different credit scores and why language may matter. Over the years people have learned the term "FICO" and often use it interchangeably for "credit score". The two are not exclusively interchangeable.

Confused Lady - Understanding Credit ScoresThere have been many times over the years I have heard a prospective borrower say something to the effect of, "I have a 750 FICO" or "my FICO is 681". The next couple of lines are the important ones and the rest is either setup or explanation.

In the mortgage industry the standard method of examining credit is called the "tri-merge". When a loan officer "pulls" an applicant's credit history they generally are requesting a report from three independent credit reporting bureaus. Typically these are Equifax, TransUnion and Experian. FICO is a risk model adapted by CRB's but sold under different names and each score is, nearly 100% of the time, different. What matters in the mortgage industry is that the applicant has all three scores and that the middle of the three, regardless of which bureau, meets the minimum requirement for the particular mortgage product being sought.

FICO is the Fair Isaac Company and they have, indeed, developed what is the de-facto standard for credit risk modelling. The reason that term is meaningless at the time of examing the applicants' credit is what is contained in the paragraph above. Whether the middle score is Experian's PLUS, TransUnion's EMPIRICA or Equifax's BEACON is irrelevant. Which ever score is the middle is the one used in determining credit risk based on score for the mortgage underwriting process.

Many argue that credit scoring models are cold and impersonal and often result in people with worthy credit being eliminated from qualifying simply because of a computer based decision. There may be some validity to this argument but I have not, in my years of examining credit, seen a valid example of this. Scores are based on payment history, available unused (or used) credit, length of time accounts have been open, the type of credit and a few other factors. We are not priviledged to see the actual algorithms used to determine credit score based on these factors. 

For more information see the article at "What is a credit score?"

Image: photostock /

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I started writing on Active Rain in 2006 when I was representing the mortgage industry. I am no longer in that industry and many of the older posts contain outdated information. Please do not contact me for LENDING or MORTGAGE questions but rather contact a licensed mortgage professional from your area. I have always been in marketing and branding and that is still what I do. Thanks for reading!

Comment balloon 7 commentsKen Cook • October 06 2011 09:43AM
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