Mortgage Lending

What's in a number?

A lot, if you're talking about your credit score. Lenders evaluate your ability to repay a loan based on your score. A well-known score is the FICO score (named for Fair Isaac Corporation which developed it), which uses a formula to calculate a single value to indicate creditworthiness and determine the risk involved in extending credit. Credit bureaus use different scoring systems, which range numerically from the 300s to about 900. The higher your score, the better chance you have of getting better terms for credit extended.

What determines a credit score?

Basically 5 factors determine your score:

• Past delinquencies
• The way you use your credit (usually running high balances versus keeping low balances that are paid in full monthly)
• Age of the credit file
• The number of inquiries on your credit file
• Your mix of credit (consumers with secured cards generally pose more risk than someone with a mix of installment loans and/or revolving lines)

What steps should I take to apply for a loan?

1. Review your personal credit file to determine your score and whether any accounts are reported which are not yours. Contact the credit reporting agency immediately to begin clearing up any incorrect information.
2. Carefully review your finances to determine how much you can afford to pay each month for the credit you will be requesting.
3. Begin gathering documents required for the application process – W2s, tax returns, bank statements, etc.
4. You're ready to begin the application process! A little preparation can help the application process flow more smoothly.