Credit Scores

Before they decide on the terms of your loan, lenders need to know two things about you: whether you can pay back the loan, and if you will pay it back. To assess your ability to repay, they look at your debt-to-income ratio. In order to assess your willingness to repay the loan, they consult your credit score.

The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other demographic factors.

Deliquencies, 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 wtih both positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

Your report must 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 payment history ensures that there is enough information in your report to assign a score. If you don't meet the criteria for getting a credit score, you might need to work on a credit history prior to applying for a mortgage.

At Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234, we answer questions about Credit reports every day. Give us a call at 2146635355.