Credit Scoring

(NAPS) — Whether you're currently looking to buy a house — or expect to buy one in the near future — you'll be happy to learn that over the last several years the path to securing a mortgage has become shorter and easier to navigate, due in part to the use of credit scoring in mortgage lending. Scores give lenders a quick, accurate, and objective estimate of how likely you are to repay the loan.A credit score is a number lenders use to help them answer the question: "If I give this person a loan, will I get paid back in full and on time?" Scores distill the information that exists in your credit bureau report to provide a "snapshot" of your credit risk picture at a given time. Because your credit report changes when new information is added, your score will change over time to reflect any updated information. Your score is based on numerous factors.
Delinquencies are an important factor in bank lending decisions. Someone who always pays their bills on time creates a reliable track record that the bank can be comfortable with. On the other hand, banks are more reluctant to lend to someone who consistently pays late.Similarly, the amount of debt you have will help a bank determine if they should issue you a loan. People who have taken out a significant number of loans and who already owe a great deal are a greater risk for banks.
Lastly, someone who goes on a credit shopping "binge," by attempting to sign up for many different credit lines at the same time, raises serious questions for lenders. Responsible use of credit makes it more likely that you will be approved for new loans in the future.When a lender requests your score, it is calculated by a computer in your bank or credit bureau. The score is one of many pieces of information the lender may use in evaluating your credit application. Both Freddie Mac and Fannie Mae — the two main government-chartered companies that purchase billions of dollars of newly originated home loans annually — agree that lenders should focus both on the score, and other outside factors when making a decision.Millions of Americans benefit from the speed, fairness and objectivity provided by credit scoring:Speed - Anyone who bought a home a few years ago will remember waiting weeks for their mortgage to be approved. People shopping for homes today, however, can expect to have their loans approved in a fraction of the time, ranging from two weeks to as little as four hours, because of scoring, with rapid approval from lenders, home buyers can move into their new homes more quickly, and avoid costly delays.Fairness - Just as important as speed, home buyers want to be sure that they will be treated fairly by their lender. Scores help ensure this because they focus only on that credit information that has been determined to be relevant tot he credit worthiness of the borrower. Credit scores consider all available credit report information (both good and bad), and ensure that no single piece of credit information will unnecessarily outweigh another in influencing your credit risk picture. For example, borrowers with past credit problems may still be assessed as reasonable credit risks given more recent examples of timely payment and conservative credit use.Objectivity - Credit scoring also ensures that lenders focus on the facts of the credit bureau report, rather than their own subjective feelings and emotions about you. Lenders are prohibited by law from considering any factors that could lead to discrimination, such as race, religion, gender, marital status or where you live. Lenders are instructed to focus solely on the "likelihood of repayment" when making lending decisions, ensuring that credit scoring is truly a colorblind process.To learn more about your score and your lender's policy regarding credit scoring, talk to your lender or mortgage broker.
Since credit scores are based upon information in your credit bureau reports, you should also regularly verify that all of your credit information is accurate. If you are considering buying a house, make sure that you verify all of your credit information before you start looking.There are three main credit bureaus in the United States. Each may have slightly different information in your file, so be sure to request a copy of your credit report from each. If you've been turned down for credit, the issuing credit bureau is required by law to provide you with your report for free. Carefully review and report to verify that all of the information is correct. If you find any mistakes, report them to the bureau immediately. By law, the bureaus must respond to your inquiry within 30 days.You can reach the bureaus at the following numbers:

Experian, formerly known as TRW (888) 397-3742
Equifax (800) 685-1111
TransUnion (800) 888-4213.