By: Gaye Jones ~ AnnieMac Home Mortgage

An interesting fact, 200 million consumers have a FICO score and just under 3 million have a perfect 850.

The ethnically diverse and Millennials will likely exert their influence on our business faster than product and credit adjustments by the agencies can be made to accommodate the needs of this huge cohort. Many will have to overcome credit, debt and income challenges to qualify for a home. This will require the personalized approach to lending that tech driven call centers and iPhone apps can’t compete with. Lenders will need to provide MORE to help make the American dream of home ownership a reality for many people.

One simple way is to educate borrowers on how they can fundamentally change their spending habits such that a home purchase is doable AND sustainable. Before looking for a home, getting qualified and knowing how to improve your credit score is not only the smart thing to do, it’s the right thing to do.

Below is a brief tutorial (compliments of Dr. Eisenberg) on how the new FICO model scores borrowers. Most of us are clueless on how this algorithm works, but some basic understanding can help shape behavior and increase your options for home ownership.

Payment History is 35%, prompt is best

Amount owed is 30%, less is best

Length of credit history is 15%, longer is better

Credit mix is 10%, varied debt types are superior to one type of credit

Lastly, new credit counts for 10% and application for new credit lowers your score

Like any algorithm it weights recent activity more heavily than past activity…..so with the right knowledge in hand a borrower can not only qualify easier, but also reduces his/her interest rate which in turn increases their ability to sustain their home. A little knowledge can go a long way!