Credit Scoring

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to pay back the loan, they consult your credit score.

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

Credit scores only assess the info contained in your credit profile. They never take into account income, savings, down payment amount, or demographic factors like sex race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was invented as a way to take into account only what was relevant to a borrower's likelihood to pay back a loan.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score considers 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.

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

At Mario Vega, we answer questions about Credit reports every day. Give us a call: 877-310-6200.

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