A Consumer's Guide to the Facts & Fiction About Credit Scoring and Its Role in Lending is a brochure distributed by NAMB member brokers that answers important questions consumers might have regarding credit scoring, such as:
What is Credit Scoring Anyway?
Credit scores are calculated by statistical models that assign points to factors indicative of repayment. These scoring models exist in software utilized by credit bureaus or lenders. Credit scores are based on data rather than human judgement, making credit scoring an objective risk assessment tool as opposed to a subjective, possibly discriminatory, human interpretation of information.
Even the best underwriter cannot match scoring's statistical ability to weigh and measure hundreds of factors and reach a number indicating relative credit risk in a matter of seconds. The resulting score is a "snapshot." It sums up what your past payment performance and current usage of credit say about your level of credit risk to the lender.
Because the score is a composite of all the applicant's credit information, no single factor like a late payment or even a bankruptcy will be the sole cause of an unacceptable credit score. Credit scoring can be difficult to understand and explain to consumers. NAMB has produced the brochure, A Consumer's Guide to the Facts & Fiction About Credit Scoring and Its Role in Lending, to educate mortgage consumers about credit scoring.