The scores were designed to assess risk and have been in use by retail merchants, credit card companies, insurance companies and banks for consumer lending since the 1950s. Large portfolios have been scored for mortgage servicing and investment groups, and again, they demonstrate that FICO scores are a reliable, predictive tool. The scores are objective, consistent, accurate and fast, but not perfect. The scores multiple scorecard design for example, may cause an applicant with delinquencies to score in the same range as a borrower without delinquencies. Scorecards are reviewed and updated every twenty-four months.

Credit checks, inquiries and your score. FICO has changed the way it factors credit checks and inquiries. These changes should minimize the "negative" effects that aggressive rate shopping or the normal mortgage process can have on a mortgage applicant. In the new Beacon version, the deduping process has been expanded beyond seven days. One variable counts the number of days within 365 days of scoring. If there has not been an inquiry, the deduping mechanism is not activated. If there is a consumer originated inquiry within the past 365 days from mortgage or auto-related industries, these inquiries are ignored for the first 30 calendar days from scoring; then, multiple inquiries within the next 14 days are counted as one. Each inquiry will still appear on the credit report.

The actual scoring process is proprietary, and the algorithms are copyrighted. We can share the predictive variables, the portion of the credit file considered and the weight given to each as provided by Fair Isaac to Mortgage 101. They are:

• Trade Line Information/Payment History/Credit Performance
  (35% of score)
• Current Indebtedness/Balance Compared To The High Credit
  (30% of score)
• Length Of Time Credit Has Been In Use/Opening Date
  (15% of score)
• Types Of Credit (Installment/ Revolving/Debit)
  (15% of score)
• Credit Checks/Inquiries
  (less than 5% of score)

Credit checks and inquiries should not change scores significantly because the variable in the model using inquiries contributes less than 5% of the predictive power of the model. According to Equifax statisticians, an average of 5% of the credit reports in the Equifax consumer credit reporting database (over 200 million consumer files) will see a change in score due to this. Fewer than 5% of those will see a change significant enough to effect a loan decision.

Reason codes accompany every score! The four reason codes identify the most significant reason that a consumer did not score higher. They are not red flags. Consumers with scores in the 800 range get reason codes just as consumers with scores in the 500 range. The reason codes may be used in describing to the consumer the reason for adverse action. Scores are not part of the credit file and are not covered by the Fair Credit Reporting Act. Scores, if disclosed to the consumer, must be related to the credit file - using the reason codes - since the score has no meaning in itself; the meaning or risk level is assigned by the lender and the investor.