About Your Credit Score

Before they decide on the terms of your loan, lenders need to discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.

The most commonly 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 on FICO here.

Your credit score is a result of your repayment history. They never consider income, savings, amount of down payment, or personal factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other demographic factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will improve it.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to build a score. If you don't meet the minimum criteria for getting a credit score, you might need to establish your credit history before you apply for a mortgage.

Custom Lending Group can answer questions about credit reports and many others. Give us a call: (707) 252-2700.