promptly you pay your bills.
three major sources of credit information about consumers
are Equifax, Trans Union, and Experian.
More than likely the lender will obtain your credit record
from one or more of these credit bureaus. The lender will
evaluate this information to determine whether or not
you are likely to repay the mortgage loan in a timely
fashion. Before you apply for a mortgage loan, you should
obtain a copy of your credit report (which you can order online) to see if the information
in it is complete and accurate. Checking your credit report
as early as possible will help you make sure the lender
is getting information that is accurate and up to date.
and Answers about Credit Scoring
is a credit score?
A credit score, more specifically, a credit bureau score,
is one of many pieces of information that the lender will
use when evaluating a mortgage loan application. A credit
score is a summary of a borrower's credit report and a
numerical measurement that reflects a borrower's management
of credit. Your credit score is based on the records compiled
by credit bureaus and includes the information reported
each month by your creditors, such as the amount of existing
credit you have and your payment history. A credit score
considers all of the information in the credit report
and converts this information into a number that helps
the lender determine the likelihood that you will repay
your loan on time.
scoring is an objective process, based only on the information
in your credit report. Factors such as age, race, religion,
gender, national origin, marital status, your income,
employment, and where you live are not considered in determining
your credit score.
credit scoring new?
Banks and other lenders have used credit scoring for more
than 30 years for credit cards and other types of consumer
loans, such as automobile and home equity loans. Now,
credit scoring is being used in mortgage lending.
are credit scores used?
Lenders want to extend credit to people who will pay them
back, and pay them back on time. They also want to be
objective in making lending decisions. In order to approve
your application for a mortgage loan, your lender must
evaluate and understand many different risk factors, including
your ability to repay the debt as well as how you have
managed credit in the past. Because borrowers' credit
histories can range from being very simple to being very
complex, it is sometimes difficult to determine whether
a given credit history is acceptable or unacceptable,
or whether certain information represents a strength or
using credit scoring, a lender can quickly and objectively
evaluate your credit history in a consistent manner, and
determine the likelihood that you will repay the loan
as agreed. The use of credit scores not only improves
the accuracy of the analysis of your credit history, but
does so in a way that enhances the efficiency and consistency
of the underwriting process.
does a lender get my credit score?
When you apply for your mortgage loan, you will give your
lender permission to check your credit history with the
various credit bureaus. More than likely, the lender will
obtain your files from the major credit bureaus: Equifax,
Trans Union, and Experian.
addition to obtaining a credit report, the lender can
also request a credit score. Your score is calculated
by the credit bureau - not your lender - and is based
only on the information contained in each of the credit
is my credit score determined?
A credit score is based on information in your credit
report, including information about how you have handled
debt and credit accounts in the past. The calculations
that make up a credit score are developed by looking at
the way millions of consumers manage their credit. Credit
scores have proven over time to be a reliable indicator
of whether or not a consumer would repay a loan.
score is determined by summarizing a number of factors
in your credit report. These include:
of Credit. What types of credit do you have in use?
Do you have a mixture of types of credit, such as credit
cards, personal loans, etc.? Your credit score is calculated
based on your history in these and other areas. Having established
credit, paying your bills on time, and keeping the balances
on open accounts to moderate levels will help ensure that
you have a strong credit history and a good score.
credit scores discriminatory?
No. Credit scoring is an objective process, based only
on the information in your credit report. Factors such
as age, race, religion, gender, national origin, marital
status, your income, employment, and where you live are
not considered in determining your credit score. Credit
scoring is a bias-free tool that helps lenders evaluate
the likelihood that you will repay the loan based on how
you have managed debt in the past. Because credit scoring
evaluates the information in credit reports in the same
objective manner, one borrower is just as likely as another
to have a high credit score.
my score? Is that good or bad?
Credit scores typically used in mortgage lending range
from about 300 to 900. Generally, the higher your credit
score, the less risk of future default you represent to
the lender. This is a strong indication that you have
successfully managed credit in the past and are likely
to repay a mortgage loan.
in mind that your credit score is only one factor that
the lender uses to evaluate your mortgage loan application
and that the final decision whether or not to approve
your mortgage loan is made by the lender after careful
analysis of all of the information the lender has collected.
my score be improved?
The answer is, over time, certainly. But it may be difficult
to immediately "fix" your credit score. The most effective
way to make sure that you have the best possible credit
score is to manage the credit you already have in a responsible
manner. You can do this by following two simple rules.
Avoid becoming delinquent on any of your credit obligations
(credit cards, automobile loans, or other installment
loans). Consumers occasionally miss a payment on one
of their bills. This can happen for any number of reasons.
Isolated situations like these, although they should be
avoided and will have some effect on your credit score,
should not have an effect on your ability to get new credit.
However, lenders do consider consumers who establish a
pattern of frequently paying their bills late to be greater
credit risks than those who pay on time. As a result,
lenders often are reluctant or unwilling to extend new
or additional credit to these consumers. Credit scoring
reflects not only this concern, but the actual experience
addition, filing for bankruptcy, having your car repossessed,
or having a mortgage foreclosure on your credit report
will have a major effect on your credit score and your
ability to get new credit in the future.
Avoid overuse of your credit cards and other credit accounts.
Just as it is important for you to pay your bills on time,
it is also important that you control how much money you
owe, especially on your credit cards. Lenders are increasingly
concerned about the credit risk of consumers who seem
to overextend themselves by using most or all of their
available credit - even if these consumers are still making
payments on time.
would the lender need to be concerned if you are still
making your payments on time? In recent years, there have
been many news accounts of people in financial difficulty
because they have used their credit cards up to their
maximum limits and then struggled to make their monthly
payments. For some consumers in this situation, the burden
of these monthly payments becomes so great that they stop
making payments altogether. Some file bankruptcy. This
can happen to people who have never before missed a payment.
while you may think everything is fine - no matter how
much you charge - as long as you can pay your monthly
bills on time, the fact is that you are actually a higher
credit risk than those that manage their credit accounts
scores are developed by looking at the way millions of
consumers manage their credit and are able to identify
consumers who are becoming overextended, before they become
delinquent. This risk is reflected in the credit scores
of those consumers.
if I don't have any credit references on my credit report
or just a few accounts? Will I have a credit score? Will
I be able to get a mortgage loan?
You can obtain a mortgage loan even if you have limited
credit references or no credit at all on your credit report.
It is also not a requirement for you to have a credit
score in order to obtain a mortgage.
if you have limited credit - as little as one credit reference
- a lender can still obtain a credit score for you. If
you have little or no credit references on your credit
report, the lender will work with you to develop what
is called a "nontraditional" credit report that will contain
information on how you manage financial obligations like
rental payments, utility payments, and other items that
do not normally appear on a credit report.
my lender tell me my score?
The decision is up to the lender and they are not required
to share credit scores with borrowers. The lender can
tell you if a credit score was used as part of the decision
to approve or deny your loan. If your loan is denied,
the lender can help you understand what reasons caused
the denial and what you can do to get on the path to homeownership.
do I know if the information used to calculate my credit
score is correct?
Your credit report reflects the information reported to
the credit bureaus by each of your creditors. This information
changes every time something is added or deleted from
your credit file. For instance, paying off an existing
account, opening several new accounts, or exceeding the
credit limit on one of your accounts will be reflected
in your credit record.
credit reports are inaccurate. There are also situations
in which the time between when you open or close an account
or make a payment and when this information is updated
in your credit report makes it appear your credit report
is inaccurate. The best way to ensure that the information
contained in your credit files is correct is to periodically
request copies of your credit report. Each credit bureau
keeps its own records, so you may want to request copies
from all three: Trans Union, Equifax, and Experian. Credit
bureaus generally charge a small fee for a credit report;
however, some states now require that they give free or
addition, if you have been turned down for credit because
of information contained in your credit report, you are
entitled to receive a free copy of your report within
60 days of the denial. If you think your report contains
mistakes, notify the appropriate credit
bureau. They will investigate the item and remove
any incorrect information. If information in your credit
file changes, your lender may want to request another
copy of the report and a new credit score. Keep in mind,
however, that making changes to your credit report may
not change your credit score.
there are errors in my credit report, do I have to wait
for them to be corrected before applying for a mortgage?
No. If you have reviewed your credit report and found
errors, you should contact the credit bureau immediately
and get it to correct the information. You still can apply
for a mortgage while this information is being corrected.
Just explain the circumstances to the lender and explain
that the credit bureau is correcting the information.
If you already have applied for a mortgage loan, your
lender still can evaluate your credit report and your
loan application without a credit score by reviewing the
information that is correct in your credit report.
if my credit report shows late payments or other problems
that have since been resolved?
Your credit report provides the lender with information
about how you manage debt. Any history of late payment
or other problems will be reflected in your report for
a period of time. Sometimes there are circumstances -
such as an illness or job loss - that can prevent a borrower
from paying his or her bills on time. When the person
gets well or gets a new job, payments can resume as agreed.
Although the credit report will still reflect the late
payments, you should explain the circumstances to the
lender as well as the steps that have been taken to correct
the problem. The lender will consider all of this information
in making the final decision.
makes the final decision? Will a computer make the decision
or approve or deny a mortgage loan?
Absolutely not. Automated underwriting and credit scores
are tools that help the lender evaluate all of the information
gathered about you, your financial situation, your credit
history, and information about the value of the property
you plan to buy.
final decision whether or not to approve or deny your
mortgage loan application is made by the lender, not a
computer. The use of these tools, combined with solid
underwriting knowledge, makes the process of underwriting
a loan faster, more efficient, more objective, and less
expensive for the home buyer.
use of credit scoring and automated underwriting are part
of a careful, comprehensive analysis of the unique characteristics
of each individual mortgage application. By providing
a measurable evaluation of a borrower's ability and willingness
to repay the loan, the use of these tools gives lenders
a greater ability to identify the borrowers who have demonstrated
that they are capable of managing their finances and would
be successful at homeownership.
to Get a Copy of Your Credit Report
recommended that you obtain and review a copy of your credit
report before you begin the mortgage loan process. To obtain
a copy of your credit report, contact the following credit
bureaus via World Wide Web or by phone:
(800) 685-1111; http://www.equifax.com
Trans Union: (800)
Experian: (800) 682-7654; http://www.experian.com