What is a Credit Bureau Score, and how is it calculated?

Credit bureau scoring is a statistical means of assessing how likely a borrower is to pay back a loan. A credit bureau score is based on the data available in the borrower's credit report. The score measures the relative degree of risk a potential borrower represents to the lender or investor. It is not a measure of a borrower's income, assets, or bank account, although those and other factors are still considered by lenders and investors, independent of the score. A credit bureau score does not include any of the following in the score calculation as this would be discrimination by FCRA guidelines: gender, race, age, or Zip Code.

Fair, Isaac Credit Bureau scores range from approximately 300 to 850 points, and are available through 3 national credit data repositories:

Equifax (800) 685-1111
Trans Union (800) 888-4213
Experian (800) 397-3742

Each bureau calculates its own score, based solely on data within its individual credit file.

A Fair, Isaac Credit Bureau score, sometimes referred to as a FICOSM score, is calculated by a system of scorecards. In developing these scorecards, Fair, Isaac uses actual credit data on millions of consumers, and applies complex mathematical methods to perform extensive research into credit patterns that forecast credit performance. Each pattern corresponds to the likelihood of whether a consumer will make his or her loan payments as agreed in the future. The score is based on all the credit-related data in the credit bureau report – not just negative data such as missed mortgage payments or bankruptcies.

The types of credit information used in the credit bureau scorecards are typically the same items an underwriter would use to make a credit decision. The final score is based on the following factors:

Payment History (35%)

  • Public record and collection items 
  • Frequency: indicator of 90 day later
  • Severity: accounts over 30 and 60 days past due
    0-6 months: Major effect
    7-12 months: significant effect
    13-24 months: lesser effect

Outstanding Debt (30%)
  • Number of balances recently reported
  • Average balance across all trade lines
  • Current balance versus credit line limit:
    Over 75%: Major effect
    Over 75%: Significant effect
    Note: Accounts with small balances score better than accounts with zero balances.

Credit History (15%)
  • Age of oldest trade line
  • Number of new trade lines

Pursuit of New Credit (10%)
  • Number of inquiries and new account openings in the last year
  • Amount of time since most recent inquiry
  • Multiple inquiries for mortgages and auto loans within 30 days are lumped as one single inquiry.

Type of Credit (10%)
The credit engine looks for a good mix of the following types:
  • Bank card
  • Gas, travel and entertainment cards 
  • Department store cards 
  • Installment Loans
  • Finance Companies: these are often given a negative score, since they are commonly provided to people with substandard credit.

Fair, Isaac Corp. (FICO) observes a very large number of credit report histories of mortgage borrowers to determine which credit report items or combination of items are the most predictive of future risk: this data indicates the amount each item contributes to an accurate assessment of credit risk.

FICO does not use race, color, religion, national origin, sex, marital status, or age as predictive characteristics. Occupation and length of time in present residence are also not used in the Credit Bureau Score. Also, any information that is not present in a repository credit file is not used in creating a Credit Bureau Score.

What Does the Fair Isaac Credit Bureau Score Mean?

A Fair, Isaac Credit Bureau score is a means of rank-ordering potential borrowers based on the likelihood that they will pay their credit obligations as agreed. A higher score indicates better credit quality. If all other things are equal, borrowers with a score of 680, for example, are less likely to default on a loan than borrowers with a score of 640.

The Fair, Isaac Credit Bureau Score models scores that are scaled to indicate a similar level of risk across all three bureaus. In other words, a score of 680 at one bureau will represent the same relative risk as a score of 680 from another bureau. This risk is defined in terms of the number of accounts that remain in good standing compared to those that default. However, because the three bureaus do not collect the exact some information, it is common for a borrower to have three different scores. For this reason, most lenders will use the middle score in its evaluation.

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What Does the Title Company Do?

As part of the process of buying a home, the title company will run a title search on the property, and you will need to obtain title insurance.

Title Search
Lenders require a title search to prevent fraudulent sales. They want to be sure that the seller is indeed the owner of the property. The title search also attempts to uncover any "encumbrances" on the title. This includes liens (legal claims against a property) filed by creditors in an attempt to collect unpaid bills, as well as liens filed by the IRS for nonpayment of taxes. Any such claims against the property must be paid either before or at closing. In Santa Clara County, the seller generally pays for this search.

Title Insurance
As further insurance that the seller is giving the buyer a "marketable title," the lender will require that title insurance be purchased. There are two types of policies, and you will be required to purchase both at closing:

  • -a lender's policy (ALTA)
    -an owner's policy (CLTA or ALTA)

The lender's policy protects the lender in the event a flaw is detected in the title after the property has been bought. The owner's policy protects you. The buyer pays for the lender's policy: the owner's policy payment will vary from county to county.

The escrow officer is the neutral third party in the transaction. They cannot do anything without written instructions. They receive instructions from the seller or seller's agent, from the buyer or buyer's agent, from the lender and from any other parties requesting funds (i.e. termite companies, home inspectors and insurance agents). If there are any conflicting instructions, they cannot proceed until the conflict is resolved.

After your loan has been approved, the lender will prepare the documents that you will need to sign, and then will have them sent to the title company. The escrow officer, upon receipt of the documents, will prepare them for you to sign. He or she will call you to schedule an appointment and let you know exactly how much money is needed to close escrow.

After you have signed the papers, the escrow officer will return them to the lender for review. The lender will then "fund" the loan (give the money to the title company), who will in turn record all of the documents and disburse the funds to the appropriate parties.

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Supplemental Taxes

Q. When did supplemental  tax come into effect?
A. The Supplemental Real Property Tax Law was signed by the Governor in July of 1983 and is part of an ambitious drive to aid California’s schools. This property tax revision is expected to produce over $300 million per year in revenue for schools.

Q. How will supplemental property taxes affect me?
A. If you don't plan on buying new property or undertaking new construction, this new tax will not affect you at all. However, if you do wish to do either of the two, you will be required to pay a supplemental property tax, which will become a lien against your property as of the date of ownership change or the date of completion of new construction.

Q. When and how will I be billed?
A. You could be billed in as few as three weeks, or it could take over six months. "When" will depend on the individual county and the workload of the county assessor, the county controller/auditor and the county tax collector.

The assessor will appraise your property and advise you of the new supplemental assessment amount. At that time you will have the opportunity to discuss your valuation, apply for a homeowner's exemption and be informed of your right to file an assessment appeal. The county will then calculate the amount of the supplemental tax and the tax collector will mail you a supplemental tax bill.

The supplemental tax bill will identity, among other things, the following information: the amount of the supplemental tax and the date on which the taxes will become delinquent.

Q. Can I pay my supplemental tax bill in installments?
A. All supplemental taxes on the secured roll are payable in two equal installments. The taxes are due on the date the bill is mailed and are delinquent on specified dates depending on the month the bill is mailed as follows:

  • 1. If the bill is mailed within the months of July- October, the first installment shall become delinquent on December 10th of the same year. The second installment shall become delinquent on April 10th of the next year.

  • 2. If the bill is mailed within the months of November through June, the first installment shall become delinquent on the last day of the month following the month in which the bill is mailed. The second installment shall become delinquent on the last day of the fourth calendar month following the date the first installment is delinquent.

Q. How will the amount of my bill be determined?
A. There is a formula used to determine your tax bill. The total supplemental assessment will be prorated based on the number of months remaining until the end of the tax year, which is June 30th.

Q. Can you give me an idea of how the proration factor works?
A. The supplemental tax becomes effective on the first day of the month following the month in which the change of ownership or completion of new construction actually occurred. If the effective date is July 1st, then there will be no supplemental assessment on the current tax roll and the entire supplemental assessment will be made to the tax roll being prepared which will then reflect the full cash value. In the event the effective date is not on July 1, then the table of factors represented on the following panel is used to compute the supplemental assessment on the current tax roll.

(Example: The County Auditor finds that the supplemental property taxes on your new home would be $1,000 for a full year. The change of ownership took place on September 15 with the effective date being October 1: the supplemental property taxes would, therefore, be subject to a proration factor of .75 and your supplemental tax would be $750. )

Q. Will my taxes be prorated in escrow?
A. No, unlike your ordinary annual taxes the supplemental tax is a one time tax which dates from the date you take ownership of your property or complete the construction of the tax year on June 30. The obligation for this tax is entirely that of the property owner.


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