Unravelling the Mysteries of Credit Score Calculation

The algorithms that produce Credit Scores are closely guarded secrets.  They sometimes provide vastly different Credit Scores based on what seems to be similar information.  But we do know 2 things:  We know the basic structure of their credit analysis and, as a lender, we know that there’s more to a Credit Report than just the Score.

In general, the algorithm weights the information to come up with a score as follows:

35% Payment History:  Is it a perfect repayment history or is it spotty with missed and late payments.

30% Utilization:   What percentage of the available credit is being used?  Less is 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 a Score.

10% Inquiries:  Frequent credit inquires can reflect negatively on a Score.

The good news is that a low Credit Score doesn’t mean the borrower’s application is doomed.  As a Private Lender, we look beyond the Credit Score and look at the payment history for each credit line.  Good explanations for payment histories are more important than Credit Scores alone.

If your borrower’s Credit Score is less than expected, the underwriters at Kokanee Mortgage can often provide common sense solutions to still get the deal done.