Credit Scoring

Before lenders make the decision to lend you money, they want to know that you are willing and able to pay back that mortgage. To assess your ability to repay, they look at your debt-to-income ratio. In order to assess your willingness to repay the loan, they consult your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only consider the info contained in your credit profile. 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 first invented as it is in the present day. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's likelihood to repay a loan.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score is calculated from the good and the bad in your credit report. Late payments count against you, but a record of paying on time will raise it.

To get a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to build an accurate score. Should you not meet the criteria for getting a score, you may need to work on your credit history before you apply for a mortgage loan.

At Tenby J. Dahman, we answer questions about Credit reports every day. Call us at 3038627760.