What is a Credit Score?
When lenders evaluate your loan application, they use a process called "underwriting" - they try to evaluate your ability and willingness to repay your loan. They judge your ability to repay by looking at the amount of your income and how stable your past earnings have been. This helps them to determine if you can afford the loan payments. They judge your willingness to repay by looking at your past credit history. Generally speaking, someone who has made payments on time in the past will probably do so in the future.

Lenders want their evaluation to be as accurate, objective and as consistent as possible. In an effort to achieve these goals, mortgage lenders recently began using credit scores to help in the underwriting process. Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available and other factors. According to Fannie Mae and Freddie Mac (two of the largest purchasers of home loans from lenders) credit scores have proven to be very good predictors of whether a borrower will repay the loan.

Many lenders use credit scores to help evaluate loan applications; however; a credit score is just one of many factors considered in the underwriting process. Lenders look at the entire picture. Even when a credit score is low, lenders try to find other factors that could overcome the negative credit issues and satisfy their underwriting criteria. The decision to approve or deny a loan will be made based on sound, flexible underwriting guidelines.