In a nutshell, credit scoring is a statistical method of
assessing the credit risk of a loan applicant. The score is
a number that rates the likelihood an individual will pay
back a loan. The score looks at the following items: past
delinquencies, derogatory payment behavior, current debt level,
length of credit history, types of credit, number of inquiries.
Credit scoring will place borrowers in one of three general
- First, a borrower with a score 680 and above may be considered
an A+ loan. The loan will involve basic underwriting, probably
through a "computerized automated underwriting" system and
be completed within minutes. Borrowers falling into this
category may have a good chance to obtain a lower rate of
interest and close their loan within a couple of days.
- Second, a score below 680 but above 620 may indicate underwriters
will take a closer look at the file in determining potential
risks. Borrowers falling into this category may find the
process and underwriting time no different than in the past.
Supplemental credit documentation and letters of explanation
may be required before an underwriting decision is made.
Loans within this FICO scoring range may allow borrowers
to obtain "A" pricing, but loan closing may still take several
days or weeks as it does now.
- Third, borrowers with a score below 620 may find themselves
locked out of the best loan rates and terms offered. Mortgage
professionals may divert these borrowers to alternate funding
sources other than FNMA and FHLMC. Borrowers may find the
loan terms and conditions less attractive than the "A" loans,
and it may take some time before a suitable funding source
As more companies utilize credit scoring, the loan approval
and closing time will be compressed for most consumers. In
the future, a high FICO score may be your ticket to a speedy
and competitively priced mortgage loan.