Credit Scoring
Many times we have been asked "Why does it take so long to get a mortgage?" The simple answer is - until recently there has not been a uniform system of reliably predicting loan performance and rating risk based on a borrowers credit history. As a result every lender has had to rely on their interpretation of the guidelines and make certain through exhaustive verification (the "take so long part"), that they have complied with the guidelines on every loan.
This is where credit scoring comes into the picture. Your credit score is the result of a mathematical equation that takes everything in your credit file into consideration and ranks or "scores" your likelihood of default based on your credit file.
You may have heard the your credit score referred to as a FICO score, that is because the scoring system was originally developed by the Fair, Isaacs Company in 1956 for department stores and credit card companies to make fast decisions on credit applications. As you can see credit scoring is not a new technology, it is only new to the mortgage industry. Credit scores range from 350 to 900, the higher the better.
Before credit scoring was put to use in the mortgage market place it was tested extensively by Fannie Mae, in their automated underwriting system. The scoring mechanism was tested on over 1 million prior loans. The prediction of the credit score was compared with what actually happened and the credit score was found to be a very accurate tool for forecasting delinquency and default. Generally you must score over 600 to be eligible for a conforming loan, but there are exceptions.
Other Books In the Library
Main Library Page <> Down Payment Stratagies <> Chart of Interest Rates <> Questions To Ask A Lender <> What Are Lenders Looking For? <> Why Buy A Home <> VA Loans <> FHA Loans <> Settlement Cost Handbook <> 3 Things To Avoid <> How To Get Out Of Debt <> Understanding How To Use Credit <> Credit Repair <> Appraisals <> Title Insurance <> Credit Scores <> Automated Underwriting <>