A Score that Really Matters: Your Credit Score

Before lenders make the decision to give you a loan, they have to know that you're willing and able to pay back that mortgage. To figure out your ability to repay, they look at your debt-to-income ratio. To assess your willingness 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. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score is a direct result of your history of repayment. 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. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score results from positive and negative information in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to assign a score. If you don't meet the criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage loan.

Bob Rutledge Mortgage can answer questions about credit reports and many others. Give us a call at 3149139678.