By Eve Chen () - July 2, 2019
Here’s a question we’re often asked: if lenders are all drawing credit reports from the same three credit bureaus—Experian, Equifax and TransUnion—why do some lenders accept and others reject my application when it comes time to refinance? If I have bad credit from late payments, bankruptcies or delinquencies, wouldn’t every lender see the same bad credit report and deny my loan application?
The answer is a definite no! All lenders—whether banks or credit unions—have their own ways of defining risk and measuring it. What may seem like an acceptable level of risk to one lender may be a clear denial for another. In that instance, the institution that does offer you the loan, may do so with a higher rate to cover their risk.
Every lender has its own formulas for calculating risk and no two institutions have the same one. They are essentially using your past history to determine how likely you are to pay them back. Late or missed payments, bankruptcies, home foreclosures, judgments against you for non-payment and high credit balances are all warning signs to lenders.
While the customer’s credit report is an important component of a lending decision, there are dozens of other inputs that may be used to calculate your final credit score. As explained by the VantageScore credit reporting site:
“There is no one credit scoring model that singularly represents the consumer lending marketplace. In addition to…the dozens of FICO* models [measuring consumer credit risk] that are in use today, many lenders rely on their own proprietary models to grant or manage credit.
In light of the reality that no single credit model is the yardstick used by all, or even most, consumer lenders, consumers should understand that no score they buy or obtain from a free-score web service is guaranteed to exactly match scores from the model or models a lender may consider when making a lending decision.”
To make things as easy as possible when you go to refinance, here are two recommendations you should follow:
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