A Score that Really Matters: The Credit Score

Before lenders make the decision to give you a loan, they need to know if you're willing and able to repay that mortgage loan. To understand whether you can repay, they assess your income and debt ratio. In order to calculate your willingness to repay the mortgage loan, they consult 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 (very high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only take into account the info in your credit reports. They don't consider income, savings, down payment amount, or demographic factors like sex race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other demographic factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score is calculated from the good and the bad 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, borrowers must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to assign an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage.

At The Lending Source, we answer questions about Credit reports every day. Give us a call at 9736012122.

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