| For years, lenders have utilized "credit scoring" to | | | | 1) Your current amount of debt as compared to your |
| determine whether or not an individual is a good credit | | | | potential total available credit. |
| risk. Credit scoring has recently become a hot topic, | | | | 2) Payment history on current and previous accounts. |
| due in large part by the mortgage lending industry's | | | | 3) The length of your credit history. |
| willingness to use the process to evaluate one's | | | | 4) The number of credit inquiries (each time a creditor |
| likelihood of repaying home mortgage refinancing or | | | | pulls credit in response to your application). |
| second mortgage loans. Even insurance companies | | | | 5) The number of separate open accounts. |
| use credit scoring as part of their underwriting | | | | 6) Collection actions including judgments, repossessions, |
| procedure when writing automobile and home | | | | foreclosures, and bankruptcies |
| insurance coverage. | | | | Using the statistical program, lenders compare this |
| Credit scoring is a system, based on a statistical | | | | information about you to the credit performance of |
| program, which awards points for certain factors that | | | | other consumers with similar profiles. Therefore, it is |
| help predict who is most likely to repay a debt, such as | | | | usually more reliable than a subjective or judgmental |
| a mortgage refinancing or second mortgage loan. The | | | | decision, because it is based on real data and statistics. |
| total number of points, or score, is what lenders use to | | | | Although it may seem somewhat impersonal, when |
| determine an individual's creditworthiness. A large | | | | used properly, credit scoring can allow creditors to |
| random sample of customers is taken, and analyzed | | | | evaluate credit applications faster and more accurately |
| statistically to identify characteristics relating to credit | | | | than individuals, in an impartial and unbiased manner. |
| risk. These factors are then given a weight based | | | | In addition, the home mortgage refinancing and second |
| upon how strong a predictor they are of who would | | | | mortgage loan process has been shortened as a |
| be a good credit risk. | | | | result of the speed in which mortgage lenders can |
| Credit scoring models do vary from lender to lender, | | | | now make decisions utilizing the credit score model. |
| but most generally include the following factors: | | | | |