A Score that Really Matters: Your Credit Score

Before lenders decide to lend you money, they need to know if you are willing and able to pay back that mortgage. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are 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.

Credit scores only take into account the info in your credit reports. They do not take into account your income, savings, down payment amount, or personal factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to repay the loan while specifically excluding any 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 considers both positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will improve it.

Your credit 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 sufficient information in your report to generate a score. If you don't meet the minimum criteria for getting a credit score, you may need to work on your credit history prior to applying for a mortgage.

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