Credit Scoring

Before lenders make the decision to lend you money, they must know that you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To calculate your willingness to pay back 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). For details on FICO, read more here.

Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to take into account only that which was relevant to a borrower's likelihood to pay back the lender.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score is calculated from the good and the bad of your credit history. Late payments lower your credit score, but consistently making future payments on time will raise your score.

Your report must have 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 sufficient information in your credit to calculate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building up credit history before they apply.

Homewithloan.com can answer questions about credit reports and many others. Call us at 972.798.2110.