Separate scorecard facts from fiction

6 September 2010

Separate scorecard facts from fictionCredit scoring was a hot topic again last week and given that my last two columns have been on the subject I felt the need to continue with it.

Credit scoring has been misunderstood by some and unfortunately that continued in last week’s issue of Mortgage Strategy with the Star Letter that attempted to argue the faults of credit scoring but was actually talking about affordability calculations.

Credit scorecards look at borrowers’ likelihood to repay the loan based on historic facts such as whether they are a good payer or not. Affordability is a separate calculation either done by an underwriter or by an algorithm, so the writer of the letter is incorrect.

Affordability is regulated under Mortgage Conduct of Business 11.2.1, which states that “a firm must take account of a customer’s ability to repay before deciding to enter into, or make a further advance on a regulated mortgage contract”.

Some lenders may choose to lend more to borrowers who have a high credit score and affordability and vice versa. Credit scoring does the same job as a good underwriter and is quicker and more consistent. Cases that are borderline may be better off going to a lender without scorecards. The main thing is that mortgage professionals need to be armed with the facts, but with so many people spouting nonsense it isbecoming difficult to identify fact from fiction.