Credit Scoring

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to repay the 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. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.

Your credit score is a result of your history of repayment. They do not consider your income, savings, amount of down payment, or factors like sex race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is based on the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will raise it.

Your report should 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 history ensures that there is sufficient information in your credit to build a score. Should you not meet the minimum criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage loan.

At 1st Credential Mortgage Inc, we answer questions about Credit reports every day. Give us a call at (281) 778-0805.

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