A Score that Really Matters: The Credit Score
Before lenders decide to give you a loan, they need to know if you're 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 assess your willingness to repay, they use your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's likelihood to repay the lender.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score reflects the good and the bad of your credit history. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
Your credit 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 payment history ensures that there is enough information in your report to build an accurate score. If you don't meet the criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage.
Executive Lending Group, LLC can answer questions about credit reports and many others. Give us a call at (816) 525-8000 & (81.
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