Credit Scoring

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to discover two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.

The most widely 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). We've written more on FICO here.

Credit scores only take into account the information contained in your credit reports. They don't take into account your income, savings, amount of down payment, or demographic factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was invented as a way to take into account 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 number of credit inquiries are all considered in credit scoring. Your score considers both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your credit to generate a score. If you don't meet the criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage.

Executive Lending Group, LLC can answer questions about credit reports and many others. Call us: (816) 525-8000 & (81.

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