What Is A Credit Score And What Does It
With the advent of computers, and especially of the Internet,
borrowers no longer hear what they sometimes did a generation ago, "Your
mortgage approval is being held up because it takes a few weeks to get your
out-of-state credit report."
These days, some lenders even boast that
they can approve mortgage applications in as little as 15 minutes.
sorts of programs have been developed to use Internet resources and to replace
human decisions with computerized judgments. One widely used aid nowadays is a
system of credit scoring. Various factors are evaluated automatically (as they
have been for some time by the issuers of credit cards) and the borrower ends up
with a numerical score, with 900 the highest possible rating.
The use of
such scoring not only shortens the time needed for mortgage approval, but also
reduces the lender's cost for the work, which should eventually be reflected in
lower application fees. In addition, fair housing experts feel it reduces the
danger that a loan officer might be influenced by racial bias.
say that the process doesn't allow for extenuating circumstances, and that
applicants who score below 620 may be unfairly refused lending. In most cases,
human underwriters review would-be mortgage borrowers who score between 620 and
660 individually. In addition, some mortgage lenders will proceed to offer
mortgage loans with higher interest rates to higher-risk and "sub-prime"
There's nothing new about much of the advice on how to keep
one's credit score high when anticipating a mortgage application.
is no time to go out and buy a car on credit" has always been useful advice. But
applicants may not realize their numerical score goes down if they simply apply
for new credit cards, run up their present cards, or keep many credit cards on
which they don't carry balances. Even unused credit cards will impact a credit
score. To get them off the record, anything more than a couple of cards should
be cut up and officially returned to the card companies.
As always, the
amount of total debt presently carried is of prime importance, whether a human
or a computer is making the decision. And as always, the borrower's outstanding
judgments will almost certainly need to be paid off before a mortgage loan is
granted. Paying them off well in advance, however, can save points on a credit
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