Photo from FreeImages.com

Photo from FreeImages.com

While Dr. Zola was ultimately destroyed and Captain America and his cohorts successfully stopped a Project Insight attack, the importance of FICO scores is far less likely to go away.

Anyone who is an Avengers fan has undoubtedly watched (at least once) Captain America: The Winter Soldier. In the film (spoiler alert!) we learn that Arnim Zola masterminded “Project Insight”, which was designed to identify, target and destroy potential threats. How did it work? By using past behaviors to predict the likelihood of future behaviors.

 

So what does this have to do with investing in real estate? Well, the answer just might surprise you. It has to do with your credit score, commonly referred to as a FICO score.

 

Before the late 1980’s and early 1990’s, people seeking financing for a primary residence or an investment property understood that their credit report would be reviewed by an underwriter who would essentially evaluate how well they’d paid their debts in the past and either approve or deny their application. Starting in 1989, however, real estate buyers were introduced to the concept of the FICO score, which began to weigh heavily on their ability to borrow money.

 

In truth, this scoring system was first developed by William Fair and Earl Isaac (hence the name “Fair-Isaac Score”) in the mid- to late-1950’s. Buy-in among lenders was agonizingly slow, but it was eventually adapted by Wells Fargo in the 1970’s. It wasn’t until 1979 the company began working on a general credit score based on data collected by Equifax and other major credit reporting bureaus, and it took over 10 years before it first appeared on reports from all three bureaus.

 

How does a FICO score work? Like Zola’s “Project Insight”, it evaluates various data from your past to predict the risk lenders will take on if they agree to finance your purchase. According to MyFICO.com, these include:

 

  1. Past payment history
  2. Amounts currently owed
  3. Length of credit history
  4. New credit
  5. Types of credit used

 

The better your payment history, the lower the balances of your current obligations and the longer the length of your credit history, the better your FICO will be. Likewise, limiting how often you apply for loans will improve the odds of a high credit score, which range from 300 to 850. According to Credit.org, 50% of the population has a credit score over 700. They have also prepared this infographic to demonstrate just how important a high credit score is to not only borrowing money, but also getting premium rates in other areas of your life:

 

From Credit.org

 

 

While Dr. Zola was ultimately destroyed and Captain America and his cohorts successfully stopped a Project Insight attack, the importance of FICO scores is far less likely to go away. So whether you’re buying your first home or looking to finance investment properties, knowing what credit scores are and keeping yours as high as possible is an important part of a strong strategy.

 

Thinking about investing in real estate? Have questions or comments? We’d love to hear from you.

 

 Captain America is a registered trademark of Marvel Comics.

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