Fickle FICO - What's a Credit Score?

Back in 1956, and engineer, William Fair, and a mathematician, Earl Isaac created the Fair Isaac Company to sell data analytics to businesses. Two years later, they created a credit scoring system. This is the birth of FICO. Starting in 1989, FICO became a numerical score with a range between 300 to 850. Lenders use this score to assess creditworthiness.

Essentially what a credit score attempts to do is to create a model which assesses a person’s credit behaviors and assign a numerical value. The higher the number, the better the credit. Credit behaviors such as payment timeliness, credit balances and the age of credit items. All of these activities impact a credit score differently.

Certain late payments will ding one’s credit score more than others. For example, a late mortgage payment will reduce a credit score more and for longer than a credit card late payment. A person who is just establishing credit within the last 6 months or so, may be penalized more for a late payment than someone who has a more extensive credit history going back for years.

Inquiries are handled differently as well. Often when shopping for a car or a home, a few credit checks are a normal part of the process. The credit score impact of those inquiries doesn’t impact the credit score as much as multiple credit card applications. Now with the advent of soft credit pulls – such as Simplist uses for preapprovals – a mortgage inquiry has no impact on credit scores.

Now that many banks, credit card providers and account aggregators share your credit score with you, it may be confusing why each has a different score. For one thing, there are now 3 credit reporting agencies. Each with a slightly different model. Another reason is not all credit providers report activity to all three agencies.

There may also be a different score depending on how is requesting the credit report. This is because different credit providers may want different weighting to credit items. A mortgage lender is going to be more interested in a mortgage late payment than any other late payment. A car loan provider may be more interested in car loan activity. A different view of credit activity will impact the score.

Overall, it’s best to pay all payments on time, keep balances as low possible, maintain accounts for a long timeline and minimize new account openings to increase your credit score.

Fed Chair Powell Sings Guns N Roses

"All we need is just a little patience"...Patience by Guns N' Roses The highlight of this past week was the Fed Minutes from the January Fed Meeting. The Minutes are a detailed record of the Fed's monetary policy setting meeting, so the markets gain insight into the psyche of the Fed as it relates to interest rates, the economy and more. What the markets heard loud and clear from the meeting Minutes was PATIENCE -- meaning, the Fed is in no rush to hike interest rates and they will watch the incoming economic data to determine when they might hike again. There is now a low probability for another hike in 2019. What are the most important reports the Fed is watching which can influence rates? Gross Domestic Product Inflation (big report next week -- more on that below) Jobs Report Consumer Confidence Retail Sales In response to the Minutes, mortgage bond prices and thus home loan rates are hovering near the best levels in a year. If you or someone you know has questions about home loans, give me a call. I'd be happy to help. Forecast for the Week This coming week has a number of risk-filled events for the markets to digest. Economic data for the week is chockful of reports that will cover a broad spectrum of the U.S. economy with the highlight being the Fed's favorite inflation gauge, the annual Core PCE, currently at 1.9 percent. Remember, the Fed's goal is for 2 percent inflation year over year. The Bond markets will have to deal with a whopping total of $113 billion in added supply from the Treasury in 2, 5 and 7-year T Notes being sold. This huge amount of new debt can put downward pressure on prices and upward pressure on rates. The main event for next week will be Fed Chair Powell's first semi-annual monetary policy report in front of the Senate Banking Committee on Tuesday and in front of the House Financial Services Committee on Wednesday. Chairman Powell's monetary policy position has been dovish since early January, thereby helping Stocks move higher -- we shall see if he maintains the same stance and outlook. Reports to watch: Housing data will come from Tuesday's S&P Case-Shiller Home Price Index and New Home Sales followed by Wednesday's Pending Home sales. Consumer Confidence will be released on Tuesday with Consumer Sentiment on Friday. Manufacturing data will be delivered with Thursday's Chicago PMI and the ISM Index on Friday. As usual, Weekly Initial Jobless Claims will be announced on Thursday. The first reading on fourth quarter 2018 Gross Domestic Product will be released on Thursday. That brings us to Friday's Core PCE data, along with Personal Spending and Incomes. Chart: Fannie Mae 4.0% Mortgage Bond (Friday, February 22, 2019) The Mortgage Market Guide View... Tip: How does human interaction strategy help in your online marketing? Online marketing and e-commerce are now the order of the day. In fact, 96 percent of Americans shop online. So is there any value in complimenting your online marketing strategy with a human interaction strategy? Author Yuval Harari explains in his book, "Sapiens: A Brief History of Humankind," that pro-social and community behavior are hot-wired human traits. As humans, we have relied on in-person experiences throughout history to progress and build societies. One of the biggest drivers of a sharing economy is community building. Human interaction plays a powerful role. An in-person meeting puts a face behind the brand and builds a foundation. Just shaking hands enhances a business relationship. This personal connection helps to build credibility and trust, resulting in a positive retention impact. Your connection improves when you reach out in person. When you meet a person, you are able to learn much more about him or her than what you learn from online interactions. Face-to-face conversations are rarely only one-sided, and this interaction with customers is very valuable for future marketing decisions. Strong partnerships are built with human interaction. By attending industry events, you can stay current and build a network that can be helpful for future business. Talking to contemporaries and the competition is advantageous. This in-person interaction lets you establish a human touch point with like-minded people. Take notes on all interaction, and then keep in contact with new connections by email, social media, or direct mail. Implementing a human interaction strategy can certainly be an effective supplement to your online presence. Sources: Iamagazine, Skyword Economic Calendar for the Week of February 25 - March 1 Date ET Economic Report For Estimate Actual Prior Impact Tue. February 26 09:00 S&P/Case-Shiller Home Price Index Dec NA 4.7% Moderate Tue. February 26 10:00 Consumer Confidence Feb NA 120.2 Moderate Tue. February 26 10:00 New Home Sales Jan NA 657K Moderate Wed. February 27 10:00 Pending Home Sales Jan NA -2.2% Moderate Wed. February 27 08:30 Durable Goods Orders Jan NA 102.1 Moderate Thu. February 28 08:30 Chicago PMI Feb NA 56.7 Moderate Thu. February 28 01:00 ADP National Employment Report Low Thu. February 28 08:30 Gross Domestic Product (GDP) Q4 NA 3.4% HIGH Thu. February 28 08:30 GDP Chain Deflator Q4 NA NA HIGH Fri. March 1 10:00 Consumer Sentiment Index (UoM) Feb NA 95.5 Moderate Fri. March 1 08:30 Personal Consumption Expenditures and Core PCE Dec NA 0.1% HIGH Fri. March 1 08:30 Personal Consumption Expenditures and Core PCE YOY NA 1.9% HIGH Fri. March 1 08:30 Personal Income Dec NA 0.2% Moderate Fri. March 1 10:00 ISM Index Feb NA 56.6 HIGH Fri. March 1 08:30 Personal Spending Dec NA 0.4% Moderate The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors. © 2019. Vantage Production, LLC. All rights reserved.