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The intent of the following article is to document and demonstrate methods that mortgage industry lenders use to track and report Borrower FICO Credit Score Distribution statistics.


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Borrower FICO Credit Score Overview

A FICO score is a credit score developed by the Fair Isaac Corporation. In the mortgage industry, a borrower's credit score is one of the key indicators used to determine the likelihood that a borrower will make their mortgage payment. A credit score condenses a borrowers credit history into a single number. Fair Isaac Corporation and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable and FICO Credit Scores have become widely accepted by lenders as a reliable means of credit evaluation. Credit Scores should NOT be confused with Mortgage Scores which are custom scoring models designed to predict the risk of delinquency for a mortgage loan.

Mortgage underwriters typically use a comparison or merged credit report that consolidates three separate FICO credit scores that are computed and provided by the following three credit bureaus––Experian, Trans Union and Equifax. When underwriting a mortgage, a lender may choose to use either the lowest or highest of these three scores, or the middle score.

Valid FICO scores range from 300 - 850. In the interest of mitigating portfolio risk, investors perform analysis to determine the distribution of FICO scores for loans in their servicing portfolio. This analysis typically serves two purposes. It allows the investor to take corrective actions, either through price incentives or sale of a portion of the portfolio, to diversify the portfolio and to identify correspondent lenders that have submitted a disproportionate number of low credit score loans. If deemed necessary, an investor may restrict a high volume lender to a certain percentage of low credit score loans to reduce the risk exposure stemming from too many low credit score loans from a single source.

The "Reporting Credit Score Distribution Statistics" section of this article details steps for creating a report that an investor might use to track and report the distribution of credit scores for loans that a seller has delivered to the investor. A disproportionate percentage of loans with low credit scores from a single seller could represent a significant risk to the investor. The Sample Credit Score Distribution Report in this article can be used as a model for a stand alone seller credit score distribution report or incorporated into a comprehensive Seller Scorecard report.

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