Credit score

Key Takeaways

• Credit scores generally run from 300 to 850 and are built from payment history, amounts owed, length of credit history, new credit, and credit mix.
• Lenders normally pull all three national bureaus and underwrite on the middle score rather than the highest one.
• A credit score rates repayment risk only. Income, reserves, and the property itself are judged by separate underwriting tests.
• Washington's Fair Credit Reporting Act, chapter 19.182 RCW, limits who may receive a consumer report and requires written notice when a report drives an adverse decision.

What It Means

A credit score is a three-digit number, generally between 300 and 850, that rates how likely a borrower is to repay a debt on time. A scoring model reads the borrower's credit file and weighs five things: payment history, how much is owed against the available limits, how long the accounts have been open, how much new credit was opened recently, and the mix of account types. The higher the number, the less risk a lender is pricing for, so a strong score usually buys a lower interest rate and fewer points.

In a home purchase the score is one gate among several. The lender pulls reports from the three national bureaus, and most loan programs qualify the borrower on the middle of the three numbers. That number decides which programs are open at all, and it works alongside the Debt To Income Ratio, the Down Payment, and the price of the property to set what the borrower can buy. A weak score does not always end a sale. It is one of the reasons buyers turn to seller financing, which opens the door to people a conventional lender would decline.

How It Works in Washington

Scoring models are built by the bureaus and the lenders, not by the Washington Legislature, but Washington does regulate the consumer report the score is calculated from. Chapter 19.182 RCW, the state's Fair Credit Reporting Act, is the controlling law. RCW 19.182.020 limits who may receive a consumer report, and one permitted recipient is a person the agency believes "intends to use the information in connection with a credit transaction involving the consumer," which is the lender pulling credit on a loan application. RCW 19.182.110 governs what happens after a denial: a person who takes adverse action based partly or wholly on report information must give the consumer written notice and furnish the name, address, and telephone number of the agency that supplied the report. RCW 19.182.150 ties violations of the chapter to the Consumer Protection Act. For a licensee the practical rule follows from the permitted uses in RCW 19.182.020, which run to the lender and not to the listing agent. Work from the preapproval letter, and leave the credit file with the loan officer.

Example

Nadia Brooks applies for a conventional loan on a $465,000 house in Tacoma with 10 percent down, a loan of $418,500. Her lender pulls all three bureaus and gets 706, 691, and 684, so the file is underwritten on the middle score of 691 and she is quoted 6.75 percent. Her loan officer points at one line: a $4,800 balance on a card with a $6,000 limit, which is 80 percent utilization. Nadia pays it down to $1,700, the lender re-pulls credit after the new statement posts, and the middle score comes back at 724. The rate is repriced to 6.375 percent. Principal and interest drop from about $2,714 to about $2,611, saving her roughly $103 a month for the life of the loan.

Common Mistakes and Exam Traps

• A credit score measures repayment risk, not income or job stability. Those are checked by separate underwriting steps.
• When the three bureau scores differ, most loan programs use the middle score. They do not average the three and do not take the highest.
• Credit score and debt-to-income ratio are two different tests, and a borrower can pass one while failing the other.
• A credit report and a credit score are not the same thing. The report is the file of account history, and the score is a number a model calculates from that file.