Credit Scoring

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders want to know two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay the mortgage loan, they consult your credit score.

Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.

Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other personal factors.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

Your report should contain 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 payment history ensures that there is sufficient information in your report to assign an accurate score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building up a credit history before they apply.

Not Your Average Lender can answer questions about credit reports and many others. Call us at 9722039033.