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LEARNING CENTER: Credit Scoring Myths

Myths: What impacts lending decisions?

Myth: The decision to grant a loan is based solely on the credit score.

Fact: No, a credit score is just one part of a number of factors that lenders examine in a process called “underwriting.”

Underwriting is the analysis and decisioning process used to evaluate a credit application. Underwriting criteria vary and are driven by a lender’s business; among the criteria beyond credit scores that a lender may consider are:
• Down payment
• Income
• Employment history
• Cash on hand

 

Myth: Only lower-income consumers are considered sub-prime.

Fact: It is up to lenders to delineate which consumers they consider, prime, subprime, etc. These delineations represent a consumer’s risk profile within a lender’s overall portfolio – not income level. Many lower income consumers are considered prime and super prime by lenders, while many wealthy consumers may be considered sub-prime as well.

 

Myth: Only information about my loans is sent to the three national credit reporting companies.

Fact: The three national credit reporting companies, Equifax, Experian and TransUnion, collect information on the credit use of more than 200 million Americans and make it available in credit reports. In addition to loan and payment information, credit files may include tax liens, rent payments, utility and cell phone payments, and collection accounts.

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