With the advent of computers, and especially of the
Internet, borrowers no longer hear what they sometimes did a
generation ago, "Your mortgage approval is being held up because it takes
a few weeks to get your out-of-state credit report."
These days, some lenders even boast that they can approve
mortgage applications in as little as 15 minutes.
All sorts of programs have been developed to use Internet
resources and to replace human decisions with computerized
judgments. One widely used aid nowadays is a system of credit
scoring. Various factors are evaluated automatically (as they
have been for some time by the issuers of credit cards) and
the borrower ends up with a numerical score, with 900 the
highest possible rating.
The use of such scoring not only shortens the time needed for mortgage
approval, but also reduces the lender's cost for
the work, which should eventually be reflected in lower application fees. In
addition, fair housing experts feel it reduces the danger that a loan officer
might be influenced by racial bias.
Critics say that the process doesn't allow for extenuating
circumstances, and that applicants who score below 620 may be
unfairly refused lending. In most cases, would-be mortgage
borrowers who score between 620 and 660 are reviewed
individually by human underwriters. In addition, some
mortgage lenders will proceed to offer mortgage loans with
higher interest rates to higher-risk and "sub-prime"
homebuyers.
There's nothing new about much of the advice on how to
keep one's credit score high when anticipating a mortgage
application.
"This is no time to go out and buy a car on credit" has
always been useful advice. But applicants may not realize
their numerical score goes down if they simply apply for new
credit cards, run up their present cards, or keep many credit
cards on which they don't carry balances. Even unused credit
cards will impact a credit score. To get them off the record,
anything more than a couple of cards should be cut up and officially returned
to the card companies.
As always, the amount of total debt presently carried is
of prime importance, whether the decision is being made by a
human or a computer. And as always, the borrower's outstanding
judgments will almost certainly need to be paid off before a
mortgage loan is granted. Paying them off well in advance,
however, can save points on a credit score.
Related Articles:
Clean Up Your Credit
Your Credit Score Isn't A Numbers Game
How's Your Credit? Here's How to Find Out
Review Your Credit Report Before Your Lender Does
Published: April 29, 1999
Use of this article without permission is a violation of federal copyright laws.
