A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a mortgage loan, lenders need to find out two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To understand your ability to repay, they assess your income and debt ratio. In order to calculate your willingness to pay back the loan, they consult 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.

Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, amount of down payment, or demographic factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering other personal factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score is based on the good and the bad in your credit report. Late payments count against your score, but a record of paying on time will improve it.

Your credit 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 payment history ensures that there is sufficient information in your report to generate an accurate score. Should you not meet the criteria for getting a score, you may need to establish a credit history before you apply for a mortgage loan.

Custom Lending Group can answer your questions about credit reporting. Give us a call: 7072522700.