A Score that Really Matters: Your Credit Score

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

The most widely 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). We've written more about FICO here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's willingness to pay back the lender.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score is calculated wtih positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your credit to generate a score. If you don't meet the minimum criteria for getting a credit score, you might need to work on a credit history prior to applying for a mortgage.

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.