Credit Scores

Before they decide on the terms of your loan (which they base on their risk), lenders must know two things about you: whether you can repay the loan, and if you will pay it back. To understand whether you can repay, they look at your income and debt ratio. In order to calculate your willingness to pay back 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. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score is a result of your repayment history. They don't take into account income, savings, down payment amount, or factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's likelihood to pay back the lender.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score reflects both the good and the bad in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.

Your 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 report to build an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to establish your credit history before you apply for a mortgage.

1st Credential Mortgage Inc can answer questions about credit reports and many others. Give us a call at (281) 778-0805.