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Credit scores and the effect on your mortgage approval

A credit score essentially is a numerical "score" based on one's ability to pay credit/debt over time. It is used by lenders to assist them in determining which loan program and interest rate can be made available to you based on your credit history.

The mortgage industry started utilizing "scoring models" in the early 1990's. The use of scoring models in the mortgage industry came about as the major secondary market players known as Fannie Mae and Freddie Mac developed new automated underwriting systems. Those systems compare payment histories from literally millions of similar loans coupled with the credit score of the applicant.

If someone can go to a Mercedes dealership and drive off the showroom floor an hour later with a $100,000 car (a depreciating asset), they should be able to obtain a home loan (an appreciating asset) the same way. The mortgage industry has been slow to adapt to this, but finally scoring models now figure prominently in the future of how people obtain home mortgages.

There are three major companies that hold your credit and background information, Equifax, Experian and TransUnion. When a consumer obtains credit, the creditor reports the payment history to these companies. This is generally done monthly.

These companies simply accept the information as it comes in electronically. This is very important to remember, they DO NOT check the accuracy of the information just what is reported by the creditor at the time.

Pay attention to your credit score as it plays the most vital role in your mortgage approval & how low or high your home loan rate will be at the end. This can make or break you from getting a great quality home loan and great low rate as are available currently in mostly any home loan markets nationwide.

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