Understanding Credit Scoring On Mortgage Refinancing Or Second Mortgage

Understanding Credit Scoring On Mortgage Refinancing Or Second Mortgage Loans

Understanding Credit Scoring on​ Mortgage Refinancing or​ Second Mortgage Loans.
For years,​ lenders have utilized credit scoring to​ determine whether or​ not an​ individual is​ a​ good credit risk .​
Credit scoring has recently become a​ hot topic,​ due in​ large part by the​ mortgage lending industry's willingness to​ use the​ process to​ evaluate one's likelihood of​ repaying home mortgage refinancing or​ second mortgage loans .​
Even insurance companies use credit scoring as​ part of​ their underwriting procedure when writing automobile and home insurance coverage .​

Credit scoring is​ a​ system,​ based on​ a​ statistical program,​ which awards points for certain factors that help predict who is​ most likely to​ repay a​ debt,​ such as​ a​ mortgage refinancing or​ second mortgage loan .​
the​ total number of​ points,​ or​ score,​ is​ what lenders use to​ determine an​ individual's creditworthiness .​
a​ large random sample of​ customers is​ taken,​ and analyzed statistically to​ identify characteristics relating to​ credit risk .​
These factors are then given a​ weight based upon how strong a​ predictor they are of​ who would be a​ good credit risk .​

Credit scoring models do vary from lender to​ lender,​ but most generally include the​ following factors:
1) Your current amount of​ debt as​ compared to​ your potential total available credit.
2) Payment history on​ current and previous accounts.
3) The length of​ your credit history.
4) The number of​ credit inquiries (each time a​ creditor pulls credit in​ response to​ your application).
5) The number of​ separate open accounts.
6) Collection actions including judgments,​ repossessions,​ foreclosures,​ and bankruptcies
Using the​ statistical program,​ lenders compare this information about you​ to​ the​ credit performance of​ other consumers with similar profiles .​
Therefore,​ it​ is​ usually more reliable than a​ subjective or​ judgmental decision,​ because it​ is​ based on​ real data and statistics .​
Although it​ may seem somewhat impersonal,​ when used properly,​ credit scoring can allow creditors to​ evaluate credit applications faster and more accurately than individuals,​ in​ an​ impartial and unbiased manner .​

In addition,​ the​ home mortgage refinancing and second mortgage loan process has been shortened as​ a​ result of​ the​ speed in​ which mortgage lenders can now make decisions utilizing the​ credit score model.

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