Understanding Credit Ratings

Your lender looks at information other than your credit rating when deciding whether to give you a home loan. Additional information includes:

• Employment history, including whether you are self-employed
• Monthly debt payments versus your current income (also known as debt-to-income ratios)
• Savings patterns and amount of liquid asset reserves
• The type of loan you want
• The value of the property you want to buy or refinance
• The amount of the down payment you plan to make or the amount of equity you already have in your home

All of these factors make up the loan application profile.

Once this information is collected, the lender uses computer-based programs referred to as Automated Underwriting.  These systems evaluate all the information objectively and efficiently.  Using these electronic evaluations along with other information, the lender will be able to create a detailed profile of your credit worthiness.  Finally, the lender will make a final decision regarding your ability to repay your loan.

Credit ratings and Automated Underwriting are widely used today because they speed up the mortgage approval process for consumers. Credit ratings allow mortgage lenders to treat each person objectively by applying the same standards for everyone. They also do not include race, religion, national origin, or marital status as part of the evaluation process. Therefore, credit ratings are blind to demographic or cultural differences among all applicants, and assess each factor equally for every consumer, every time.