A Score that Really Matters: Your Credit Score

Before lenders make the decision to give you a loan, they need to know that you're willing and able to pay back that mortgage. To figure out your ability to repay, lenders assess your debt-to-income ratio. In order to assess your willingness to pay back the mortgage 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 (high risk) to 850 (low risk). We've written more on FICO here.

Credit scores only assess the info in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's willingness to pay back a loan.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score comes from both the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your credit report must contain 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 credit to calculate a score. Should you not meet the criteria for getting a score, you may need to establish your credit history prior to applying for a mortgage loan.

Custom Lending Group can answer questions about credit reports and many others. Call us at 7072522700.