Usage Credit Scores for Mortgage Application
More and more lenders not rely on the credit score of our borrower to make the initial decision regarding the credit worthiness of the individual. Cost experience and usage has to get that credit scores our excellent predictors of the mortgage loan performance as well as the reliability of the consumer has a borrower. credit scores developed by analyzing the board was payment history and credit report, our pivotal for the functioning of the automated underwriting process as well.
A person’s credit score have nothing to do with the board was age, race, gender, religion, national origin or marital status. They are calculated using a complicated but effective algorithm using the information present in your credit file such as your debt and payment history.
The following are some of the factors used in calculation of your credit score:
Public records: any data present in public records that is connected to your credit such as federal court judgments for any payment recovery or debt repayment, filing of bankruptcy, tax liens and foreclosure which are usually available in the county recorder’s office are used in the calculation of your credit score and have a direct impact.
Outstanding balance: outstanding balance against existing lines of credit such as personal loans, automobile loans, current mortgage or credit card balance is used in the calculation of the credit score. The higher the balance as compared to the credit limit available to you lower is the credit score. This mostly applies to unsecured and revolving credit such as a credit card because all other kinds of loan only get reduced by running through their term. But the older these accounts get and the more regular payment history reflected on the payment the better it is for your credit score.
Age of credit and delinquent accounts: the age of your credit accounts also matters for the purpose of calculation of the credits score. Older credit accounts with a good payment history have a more positive impact whereas newly opened credit accounts have to wait till they show signs of stable and your payment till they can increase your credit score. In fact many credit accounts opened recently in a short duration of time have a negative impact on the credit score. Another thing that is considered is the duration for which you have been current on your payments. If there has been a delinquency within the past few months and it will have a more negative impact on your credit score as compared to a late payments that happened a few years back. The negative impact of late payment decreases with the passage of time where more recent negative entries have a more serious impact on the credit score.
Recent inquiries on your credit report : if you have been applying for lines of credit recently which has resulted in several inquiries on your credit report in a short duration of time it is likely to have a negative impact on your credit score because it could mean that you are facing financial problems which has brought about the need 2 apply for additional credit to supplement lack of income.
The 1st and the most widely used credit scoring model was developed by the Fair Isaac Corporation and is called the FICO score. Fico score is the most widely used credit score even by market centers, although some choose to use specialized credit scores provided by 3rd parties. The special credit course are supposed to be calculated keeping the need and the risk of a mortgage lender in particular in mind during calculation. A FICO credit score is a 3 digit number which ranges from a low of 300 to a maximum of 850.
On broad sampling of 25,000 mortgage loans made by the Federal housing administration [FHA], analyzed by Freddie Mac, it was discovered that borrowers with fico scores of 680 or more one less likely to default on their mortgage. It goes to show why borrowers with a high credit score are given your mortgage rates as well as charged less origination fee and closing costs. Conversely a lower credit score of 620 or less could be a strong indication that the borrower is a credit risk. As a result these borrowers will be charged the hired it of interest on them on page because the lender wants to recover the money lent as much as possible. This works because the initial payment for the 1st many years of a mortgage loan go towards making the interest payment on the mortgage. So a lender on small interest from those borrowers who have a low credit score but also takes on the additional risk of lending to these for those in the 1st place.