CREDIT RATINGS AND SCORING
[Credit Ratings and Scoring] [Loan Application Time] [Mortgages]
Lenders use credit reports to assess risk when making loan
decisions. There are three national credit repositories that lenders
use to obtain your credit history. The three companies are Experian,
Equifax and TransUnion. It is advisable to periodically check your
credit report for errors. Checking your credit report for accuracy
can prevent loan problems created by poor credit scores that are
caused by inaccurate or duplicate accounts in your file.
In addition to a credit report these companies also report a
credit score to the inquiring mortgage company. The scores are part
of the risk assessment lenders use to base their decision on when
granting you a loan. The scores are calculated by copyrighted
mathematical formulas that assign numerical weight to various aspects
of your credit history. The portions of your file used in scoring and
the weight they are usually given is listed below.
- Previous credit performance ... how you pay your account ... (35%)
- Current level of indebtedness ... what you owe ... (30%)
- How long your accounts have been open and in use ... (15%)
- Types of credit available ... installment loans, revolving accounts, debit accounts ... (15%)
- Pursuit of new credit ... how often and recently you applied for credit ... (5%)
Credit lenders use different scores when assessing risk for
different types of credit like a credit card vs. a mortgage. You will
have a credit score if the following conditions are in your file.
- At least one undisputed trade line that has been updated in the last 6 months.
- One trade line open at least six months.
- No "deceased" indicator on the credit file.
The meaning or risk level associated with the credit agency
scores are assigned by the mortgage lender.
***When planning to purchase a home you should not start applying for
new credit or incurring new debt. Don't run out and start buying
furniture and appliances on credit before you have bought your home
and closed the loan.
If you have questions about the loan process, e-mail me at credit@julieparrishrealty.com.