Credit Score Information

What are Credit Scores?

Credit scores are an entirely new phenomenon that has affected mortgage lending, much the way Automated Underwriting Systems have done. Establishing a credit history is a requirement for obtaining a mortgage, and a credit score is the number assigned to quantify the quality of credit. Understanding how credit scoring and mortgage lending work hand in hand can give you the upper hand when negotiating your loan terms.

Credit scores are numbers that are derived from a customer's credit history. The number reflects the various credit details in a consumer's past and the likelihood of default. People with higher credit scores get better rates than those with low credit scores.

Credit scoring has been around for years, it was just done manually. Give so many "points" for paying loans on time, so much for job stability, more for low debt ratios, and so on. Credit scoring was used mostly for credit cards. Have you seen all those signs in the mall or at a department store advertising "instant" approval for a store account? They use a method of scoring. Your basic information- whether you own a home or rent, your income, where you've lived, etc.- is entered into a database, and your credit is reviewed by a software program while you wait. A few moments later, Voila! Shop till you drop.

Credit scoring for mortgages is relatively new compared to other consumer lending, like credit cards and installment loans. Credit scores can be as low as 300 or as high as 850. People with excellent credit generally have their credit scores at 720 or above. Good credit scores starts around 660 and average credit score is around 620. Credit scores below that may be considered damaged or impaired credit.

Credit scoring is not an exact science. How credit scores are calculated is not divulged to the general public because credit-reportng companies want to keep people from manipulating the scores. The score itself is more of a two-year overview of recent credit behavior.

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