A Score that Really Matters: Your Credit Score

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Before they decide on the terms of your loan (which they base on their risk), lenders need to know two things about you: your ability to pay back the loan, and if you are willing to pay it back. To understand your ability to repay, they look at your income and debt ratio. In order to calculate your willingness to repay the loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.

Your credit score is a direct result of your repayment history. They never consider income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess willingness to repay the loan without considering any other demographic factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated from 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 improve your score.

Your credit report must 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 credit to calculate a score. If you don't meet the criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage.

1ST CREDENTIAL MORTGAGE INC can answer questions about credit reports and many others. Call us: 2817780805.