Credit Scoring

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders want to discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To understand your ability to repay, they assess your income and debt ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more on FICO here.

Credit scores only assess the info in your credit reports. They do not take into account your income, savings, down payment amount, or personal factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other personal factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making 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 history ensures that there is enough information in your credit to build an accurate score. Should you not meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage loan.

At Executive Lending Group, LLC, we answer questions about Credit reports every day. Call us at 8165258000.