What is a credit score?

A credit score is a numerical score ranging from 400-900 which is an indicator of an individual's handling of past credit obligations and the capacity for repayment of obligations in the future. Credit scores, also called FICO scores, are based on statistical models calculated by a system of scorecards. All three national credit data repositories have formulated their own credit scoring system. The score is calculated at the repository, and is based solely on the data within the repository's individual credit file. In developing their scorecards, they use actual credit data on millions of customers and apply complex mathematical methods to perform extensive research into credit patterns that forecast credit performance. Through this process distinctive credit patterns are identified that correspond to a likelihood that a consumer will make their payments as agreed in the future. The score is based on all the credit-related data in the credit bureau report not just negative data such as missed mortgage payments or bankruptcies.

How are your credit scores calculated?

All credit score models at each credit repository are of similar design and the scores are scaled to indicate a similar level of risk across all three bureaus. In other words, a certain credit score at one bureau will represent the same relative risk of a score from a different credit bureau.

How are they used in the mortgage lending process?

Credit Scoring is relied upon very heavily by institutions that buy and sell mortgage loans in the secondary mortgage market. Typically a decision to approve or decline an individual's loan is not solely based on the individual's score. However, the credit score is reviewed very carefully and does provide the means for the lender's underwriter to make a more informed decision on the applicant's willingness and capacity to repay their obligations. In many cases the score may actually work to the benefit of the applicant as it tends to offset a single repayment problem as the score takes into account the entire payment history of the applicant over the relevant time frame.

A high credit score is indicative of better repayment capacity and more timely repayment of past obligations. Scores range from 400-900 with scores of 620 and above usually associated with those individuals who can expect to receive conventional financing at market rates for the credit worthy. This is not a hard and fast rule. Applicants exhibiting very high scores (generally above 700) can expect to obtain the very best rates possible and possibly receive a reduction in the documentation required by the lender. The reduction in documentation allows for faster processing and issuance of the final commitment on the loan at an earlier time. Conversely, lower scores reflect the fact that based on historical data, the applicant represents a higher risk to the lender with more likelihood of default.

How can I influence my scores?

There is no magic formula when it comes to steps that the consumer can take to improve the score by specific amounts but scores will improve as the consumer's overall credit picture improves. The timing of the reflection of positive steps taken to improve one's credit score is also an indefinite as changes must work their way through to the credit repositories through updates provided by credit suppliers. Below are a few steps that if followed, will ultimately result in an improved score:

• Paying all credit providers in a timely manner (on or before the due date.)

• Paying down revolving debt to below 30% of the available credit line of each credit provider.
• Avoiding the submission of credit applications which will be reflected as an inquiry on one's credit report, and the indication that the applicant may have just added an obligation that is not yet reflected in the applicant's credit report. The effect of inquiries on the score has recently been lessened with a change instituted by the credit repositories where all mortgage and auto loan inquiries made within the previous 30 day period are now ignored.
• Carefully reviewing one's credit report on a regular basis to make sure that the report is not reflecting transactions which are not yours.
• If erroneous entries are found, immediately requesting the repository to delete the incorrect entry. This will require the submission of a letter along with any and all supporting documentation. Mortgage.com has alliances with a credit repair institution that can help. Ask your Mortgage.com representative for more information. Below is a list of the National Credit Repositories for reference:

Experian Information Services
P.O. Box 2106
Allen, TX 75002 (888)-397-3742

Equifax Information Services
P.O. Box 740241
Atlanta, GA 30374 (800)-378-2732

Trans Union Corporation
P.O. Box 390
Springfield, PA 19064 (800)-888-4213

How quickly will actions that I take result in a change in my credit score?

The fair credit reporting act gives the repository 5 days to notify the trade line of the dispute and request an investigation. Within 30 days the trade line must report back to the repository regarding whether the disputed entry should be modified, deleted or remain

Unchanged. If there is no response regarding the dispute, the repository must remove the item from the applicant's file, but if 10 days later the trade line reports back that the date entry is correct, it will be added back into the applicant's credit file. If there is any change to the applicant's file, the repository must notify the consumer within 5 days of the change. After receiving notification of a modification to an applicants file, the credit report request may be re-requested and receive a new score.

Is there any indication of changes in the reliance on credit scores in the mortgage loan process?

Recently Fannie Mae, the nations largest investor of home mortgage loans, announced that going forward, they will be less reliant on credit scoring systems. This means that their automated decisioning engine, Desktop Underwriter ,will be less reliant upon the actual score of the applicant and more reliant upon the details of the individual's credit history.

Are there any other tips that might help in the area of credit scores?

In order to help ensure that you as a potential home buyer become a successful homeowner, you may enlist the assistance of local Consumer Credit Counseling Service Agencies, which provide homebuyer counseling, with participating lenders. The nonprofit groups provide pre-purchase homebuyer education. These courses cover such topics as applying for a mortgage, budgeting for household expenses, and shopping for , inspecting and maintaining a home.