Credit Scoring -- "The Impact On Mortgage Loans" by C. M. Corky Watts, Webmaster The Mortgage Mart There are major differences when comparing the process of obtaining a car loan and a home loan. Auto loans take this course. After the car is sold, the salesman escorts the customer to the financing department, located at the dealership. The finance manager has the customer complete a simple loan application which takes about an hour. After the loan is approved, the customer drives off the lot with an asset that immediately depreciates 20% or more. The home loan process takes on a more cryptic course. Generally, the process takes 15 online personal loans quote calculate debt income ratio to 45 days and requires mounds of paper work before the loan is approved; the actual loan closing may take an additional 3-5 days. All of this paperwork is required on an asset that does not move and rarely depreciates. The mortgage lending process outlined above is about to change. Lenders are now looking to shorten the processing time for many borrowers through the same tools used for car financing -- credit scoring. In a nutshell, credit scoring is a statistical method of assessing the credit risk of a loan applicant. The score is a number that rates the likelihood an individual will pay back a loan. quicken mortgage calculate debt income ratio The score looks at the following items: Past delinquencies Derogatory payment behavior Current level of indebtedness Length of credit history Types of credit How often credit is applied for Number of credit inquiries There are three major credit repositories that prepare credit scores. They are Equifax, Trans Union, and TRW. One of the scoring models has been created by Fair, Isaac & Co, which prepares a numerical score that ranges between 450 to 850 -- the lower the score, the higher the risk. This score is commonly known as a FICO score. In a survey of 1 million loan records, Fair, Isaac found that one in eight borrowers credit card offer calculate debt income ratio with a FICO score below 600 were either severely delinquent or in default. In contrast, only one in 1300 borrowers with a scores above 800 had similar delinquency problems. The strong evidence of predicting delinquencies has prompted major secondary market investors -- FNMA and FHLMC -- to begin using FICO scores in their quality control of lenders selling loans to them. FNMA found only 10% of borrowers in loans they purchased had scores below 620, but the group accounted for 1/2 of all defaults. Both secondary market investors are highly recommending lenders use credit scoring as a method to assess default risk. Credit scoring will place borrowers calculate debt income ratio calculate debt income ratio in one of