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...