A credit score is a numerical representation of an individual's ability to manage credit and debt over time. Lenders use it to determine which loan programs and interest rates to offer.

The mortgage industry began using "scoring models" in the early 1990s when Fannie Mae and Freddie Mac developed automated underwriting systems. These systems compare payment histories from millions of similar loans with the applicant's credit score.

The pioneers of automated underwriting systems believed that if someone could buy a $100,000 car in an hour, they should be able to get a home loan just as easily. Although the mortgage industry has been slow to adopt these methods, scoring models are now crucial in the mortgage application process.

There are three major credit repositories: Equifax, Experian, and TransUnion. When consumers use credit, creditors report their payment history to these repositories, usually monthly. These repositories accept the information electronically without verifying its accuracy.

We hope this information helps you understand credit better. For the best loan programs, think of Option Funding, Inc. when you or your acquaintances are shopping for a loan.