The Mystery Behind Credit Scores

Have you ever wanted to unveil the mystery behind how credit scores are calculated?

The problem is that algorithms used to produce credit scores are often closely guarded secrets. And they sometimes provide vastly different credit scores based on similar types of information.

Despite this, there are two things that we know for sure:

The basic structure of the credit report
That there’s more to a credit report than just the score

In general, the algorithm weighs the information to produce a score as follows:

35% Payment History: Is it a perfect repayment history? Or is it a spotty one with missed and late payments?
30% Utilization: What percentage of the available credit is being used? Less is always better.
15% Credit History: How many years of active credit history are available?
10% Type of Credit: A variety of credit types will reflect positively on credit scores.
10% Inquiries: Frequent credit inquires can reflect negatively on credit scores.

The good news is that a low credit score doesn’t necessarily mean that the borrower’s application is doomed. This is because as a private lender, we look beyond the credit score and directly examine the payment history for each credit line.

In our industry, good and reasonable explanations for payment histories are more important than credit scores alone.

If your borrower’s credit score is lower than expected, the underwriters at Kokanee Mortgage can provide common sense solutions to help get the job done. Our lending experts have over 40 years of experience crafting creative lending solutions for files that other lenders may shy away from.

And remember, as a private lender, we always want to hear the full story. When we have all the details, a low credit score can be more of a small detail in the file as opposed to an overwhelming problem.