Perhaps the single biggest change in mortgage lending involves credit and how your credit information is analyzed. Just a few years ago, your credit report was reviewed by a human being, who would pore through your credit history asking things like, "Why were you late on your student loan two years ago?" or "You went over your credit limit twice on your credit card; please explain."

In fact, loan officers would help potential borrowers craft special "explanation letters" that would answer the underwriter's question, all the while aiming for loan approval.

But automation has changed all that. Credit scoring and automated underwriting systems have changed the landscape forever.

The Most Important Element in Your Loan Approval Is Your Credit Report.

Everything revolves around credit—the type of loan you receive, perhaps the rate you're quoted, and even whether you get the approval you want. It all boils down primarily to credit.

Your credit is defined as both your ability and your willingness to pay back your creditors. Ability means that you can afford to pay back your creditors, and willingness means that you have the inclination to do so. Both components need to be present to establish a good positive credit history.

How do you get a history? Businesses that you borrow from send information on your payment patterns to a great big centralized database. Actually, there are three great big centralized databases; they're called Equifax, TransUnion, and Experian.

Businesses that extend credit to consumers pay money to access these databases as well as put consumer payment information into them. If you pay Widget Factory on time every month, then Widget Factory sends those payment patterns to the various databases.

If you apply to another company for credit, that company will tap one of those databases with your name, your social security number, and other personal data about you and review how you've paid other businesses. If the company's credit extension guidelines match what you want from it, then, voila, you've got a new credit account.

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