Credit Scores

Before deciding on what terms they will offer you a mortgage loan, lenders want to find out two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To assess whether you can pay back the loan, they look at your income and debt ratio. In order to assess your willingness to pay back the loan, they look at your credit score.

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

Credit scores only consider the info contained in your credit reports. They never consider income, savings, amount of down payment, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's willingness to repay the lender.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score results from positive and negative information in your credit report. Late payments count against you, but a record of paying on time will raise it.

To get a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to generate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

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