A Score that Really Matters: The Credit Score

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

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. 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 what was relevant to a borrower's likelihood to pay back a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score considers positive and negative items in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to calculate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on a credit history before you apply for a mortgage loan.

1st Credential Mortgage Inc can answer your questions about credit reporting. Call us: 2817780805.