What do lenders typically use to assess a borrower's credit risk?

Lenders typically use the FICO Score to assess a borrower's credit risk because it provides a quantifiable measure of the borrower’s creditworthiness. The FICO Score is a three-digit number generated based on the borrower’s credit history, which includes factors such as payment history, amounts owed, length of credit history, types of credit used, and new credit inquiries.

This score enables lenders to evaluate the likelihood that a borrower will repay their debt based on past credit behavior. A higher FICO Score usually indicates lower credit risk and can result in more favorable loan terms for the borrower. Utilizing FICO Scores helps lenders make quick, standardized assessments of credit risk, which is important for decision-making in the mortgage process.

Other factors, such as Loan to Value Ratio, income stability, and employment history, play roles in the overall assessment of a borrower’s financial profile but do not provide the same comprehensive picture of credit risk as the FICO Score.