What’s In A Credit Score?

One of the single most important ingredients of approving a borrower for a residential loan is their credit score.  For as long as I have been a mortgage advisor, I have heard many different theories on how it factors into the underwriters decision making.

The one that I tend to prescribe to is this – As any of you who have been through the mortgage approval process will know that the underwriter’s main responsibility is to analyze the overall risk  and reasonableness of any file that comes across his or her desk.  If I can get what we call an Approve/Eligible through our automated system initially, but the number of trade lines are not sufficient or maybe the history of said trade lines are not established then the underwriter may very well request additional supporting documentation.

An Example of this would be:  A loan file has a credit score of 700+ yet the borrower’s complete overall scenario consists of maybe just 2 trade lines.  And of those 2 trade lines maybe one has just a high credit limit of $300 and the other has $600.  To go further, the trade lines both have only been in existence for about 6 months or less.  With this example the underwriter would most likely ask for additional information from the borrower to show how they have handled other credit payments in the past.

In yet another example, a borrower has a 700+ credit score.  They have several trade lines showing on their credit report.  Most, if not all, have been in existence for 2 years or more.  They each have a high credit limit of at least, oh let’s say $2,000 or more.  In this scenario the underwriter would NOT ask for any additional documentation regarding credit.

Again, this is just a snippet of what goes into approving a borrower for a purchase or refinance.  Employment and residential history are some other ingredients, however those are for future blogs.  Hope this gives you insight on how things work behind the scenes.

If you have further questions and would like a FREE consultation, please contact us and we would be honored to assist you.  Green House Mortgage – It Pays to Go Green!