A Score that Really Matters: The Credit Score

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 assess whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they look at your credit score.

The most commonly 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). You can find out more on FICO here.

Credit scores only assess the info in your credit reports. They never consider income, savings, amount of down payment, or factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were invented as it is in the present day. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's willingness to repay a loan.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score considers positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

To get 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 enough information in your report to build an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to establish a credit history before you apply for a mortgage loan.

MortgageZ LLC can answer your questions about credit reporting. Give us a call at 8557558700.