About Your Credit Score

Before deciding on what terms they will offer you a loan, lenders must 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 assess your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.

Your credit score comes from your history of repayment. They don't consider income, savings, amount of down payment, or factors like sex race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score considers both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.

Your report must 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 enough information in your credit to assign a score. If you don't meet the criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage loan.

Not Your Average Lender can answer questions about credit reports and many others. Give us a call: 9722039033.