Credit Scores

Before deciding on what terms they will offer you a mortgage loan, lenders must know two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more on FICO here.

Credit scores only consider the information contained in your credit profile. They never consider your income, savings, down payment amount, or personal factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were first invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other personal factors.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score is calculated from the good and the bad in your credit history. Late payments count against you, but a record of paying on time will raise it.

To get a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to calculate a score. Should you not meet the criteria for getting a score, you may need to work on a credit history before you apply for a mortgage.

Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234 can answer questions about credit reports and many others. Give us a call: 2146635355.