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 repay the loan. To assess your ability to repay, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they consult your credit score.

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

Credit scores only assess the info contained in your credit profile. They never take into account your income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay without considering any other personal factors.

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

Your credit report must have 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 history ensures that there is sufficient information in your credit to generate a score. Some people don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply for a loan.

America's Home Loans can answer questions about credit reports and many others. Give us a call at 701.222.0100.

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