Credit Scoring

Before lenders decide to give you a loan, they must know that you are willing and able to repay that mortgage. To figure out your ability to repay, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. We've written more about FICO here.

Your credit score is a result of your repayment history. They don't take into account income, savings, down payment amount, or personal factors like sex race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was developed to assess willingness to pay while specifically excluding any other demographic factors.

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

Your report should 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 calculate a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.

Executive Lending Group can answer your questions about credit reporting. Call us at 4056158543.