A credit score is a compilation of information that creditors report each month regarding your balances and the timing of your payments and the information collected by credit bureaus. This information is then converted into a number that helps lenders determine the probability that you will be able to pay your loan back on time. Credit scores are calculated by comparing your credit history with millions of other consumers and have proven to be a very effective way of determining your credibility for repayment. It is important to understand that your credit score is calculated by the credit bureau and not by the lender.
Typically credit scores range from approximately 300-900 for mortgage loan decisions. Having a higher credit score usually puts you as a lower risk to a lender. Things that may affect your credit score include: Your history of payments, your outstanding obligations, the length of time you have had outstanding credit, the number of inquiries that have been made on your credit report recently and the types of credit that you use.
A credit score is just one piece of information that a lender will use to evaluate your application, there are many other factors when making a loan decision and we will never make a decision without looking at all of your financial aspects. Many financial institutions have been using credit scores for years to evaluate credit card and auto loan applications, however, only recently have mortgage lenders begun to use this tool to assist with their mortgage lending decisions.
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