A Score that Really Matters: The Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders need to find out two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To assess your ability to repay, they look at your debt-to-income ratio. In order to assess your willingness to pay back the loan, they consult your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.

Your credit score comes from your history of repayment. They do not take into account your income, savings, down payment amount, or demographic factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative information in your credit report. Late payments count against you, but a record of paying on time will raise it.

Your credit report should have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is enough information in your credit to assign an accurate score. If you don't meet the criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage loan.

Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234 can answer your questions about credit reporting. Give us a call at 2146635355.