Credit Scoring

Before lenders make the decision to lend you money, they want to know that you are willing and able to pay back that mortgage loan. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more on FICO here.

Your credit score is a direct result of your history of repayment. They do not consider income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering any other personal factors.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

Your credit report must contain 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 payment history ensures that there is enough information in your report to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.

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.