Credit Scores

Before lenders make the decision to give you a loan, they must know if you are willing and able to pay back that mortgage loan. To understand your ability to repay, they look at your income and debt ratio. To assess how willing you are to repay, they use 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 about FICO here.

Credit scores only take into account the information contained in your credit reports. They do not take into account income, savings, amount of down payment, or demographic factors like sex race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was envisioned as a way to consider only that which was relevant to a borrower's likelihood to repay the lender.

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

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your report to calculate a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply.

At Moneywise Lending, we answer questions about Credit reports every day. Give us a call: 2813708282.