A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a mortgage loan, lenders must 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, lenders look at your debt-to-income ratio. To assess your willingness 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. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more on FICO here.

Your credit score comes from your repayment history. They do not consider your income, savings, down payment amount, or demographic factors like gender, 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 take into account only what was relevant to a borrower's likelihood to repay the lender.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is based on the good and the bad in your credit history. Late payments will lower your score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your credit to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building credit history before they apply.

Executive Lending Group can answer questions about credit reports and many others. Give us a call: 4056158543.