Credit Scores

Before deciding on what terms they will offer you a loan, lenders need to find out two things about you: your ability to repay the loan, and your willingness to repay the loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay the loan, they look at your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more on FICO here.

Your credit score is a result of your repayment history. They never take into account income, savings, down payment amount, or factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is in the present day. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to repay a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score considers positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will improve it.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your report to generate an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage loan.

Executive Lending Group, LLC can answer your questions about credit reporting. Give us a call at 8165258000.