The Real Deal
Governor Signs BillL For Credit Scoring
The landmark legislation, SB 1607 (Figueroa) that gives consumers access to their credit scores, was signed into law by Gov. Gray Davis on Oct. 2. California is the first state in the nation to adopt such legislation.
What this means for consumers who wish to purchase a home is that they will now be able to request a copy of their credit report with the key reasons why a score was given a particular number. Up to now, this information was only shared by the lending institutions and banks. Small changes in the numbers could mean thousands of dollars over the life of a loan.
Supported by the California Association of Realtors, the Consumer's Union, E-Loan and the California Association of Mortgage Brokers, SB 1607 will enable consumers to learn more about what affects their credit and how they can remedy certain items to improve their scoring.
According to Gail Hillebrand, senior attorney for Consumers Union, "Credit scores are affected by more than whether a consumers paid their bills or not so they are entitled to know what affects their overall score in order to improve their chances for a favorable interest rate on a loan or mortgage."
While there are many types of credit scores, the most frequently used are credit bureau risk scores developed by Fair, Isaac and Company, a local company in San Rafael. These scores are commonly known as FICO scores. The score itself tells the lender how likely an individual is to repay a loan or make payments on time. Using a mathematical model that takes five different factors into account, a three-digit score ranging from 300 to 900 is calculated and sent to a lender requesting a credit rating for someone.
The five major factors that make up a credit score are: 35 percent payment history; 30 percent amount of outstanding debt; 15 percent length of credit history; 10 percent recent new applications or opened accounts; 10 percent mix of credit and types of accounts and loans.
Before this announcement, Fair, Isaac and Company decided to add a new section to its website that explains the various "reason codes" that make up a credit score. Consumers can access this information at www.fairisaac.com.
Following California's lead, Washington, D.C., is evaluating two separate bills that focus on credit-scoring access that were presented to the House of Representatives earlier this year. For information on either bill, visit the California Association of Realtors' website at www.car.org or the National Association of Realtors website at www.realtor.com.
Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors. Send questions on any topic to: Ask Your Realtor, c/o SILVAR, Los Altos District, 345 San Antonio Road, Los Altos, CA, 94022; call 650.949.9115; or send email to ppompei@siliconvalley-realtors.org.
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