Credit Scores

Before lenders make the decision to lend you money, they need to know that you're willing and able to repay that mortgage loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To calculate your willingness to pay back the mortgage loan, they consult your credit score.

The most widely 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). You can learn more on FICO here.

Your credit score is a direct result of your repayment history. They do not take into account income, savings, amount of down payment, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's likelihood to repay 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 is calculated wtih positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise 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 a score. If you don't meet the criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage.

At Donald Stiefer, we answer questions about Credit reports every day. Call us at 5806959369.