Credit Scoring

Before they decide on the terms of your loan, lenders need to discover two things about you: your ability to pay back the loan, and if you will pay it back. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are called 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 about FICO here.

Credit scores only assess the information contained in your credit reports. They don't consider income, savings, amount of down payment, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were invented as it is today. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other demographic factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is based on the good and the bad of your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to generate a score. If you don't meet the minimum criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.

Pacific Loan Brokers can answer your questions about credit reporting. Call us at 877-310-6200.

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