Credit Scores

Before they decide on the terms of your loan, lenders must know two things about you: your ability to repay the loan, and your willingness to pay back the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess how willing you are 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. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They never take into account your income, savings, down payment amount, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering other irrelevant factors.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score is calculated wtih both positive and negative items in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

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

Bob Rutledge Mortgage can answer your questions about credit reporting. Call us at 3149139678.