Credit Scores

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must find out two things about you: whether you can pay back the loan, and your willingness to pay back the loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to pay back the mortgage loan, they look at your credit score.

The most widely 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). You can learn more on FICO here.

Your credit score is a direct result of your repayment history. They do not consider your income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was developed as a way to consider only that which was relevant to a borrower's willingness to pay back the lender.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score comes from both the good and the bad in your credit history. Late payments lower your credit score, but consistently making future payments on time will improve your score.

Your credit report should 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 payment history ensures that there is sufficient information in your report to generate a score. Should you not meet the minimum criteria for getting a score, you might need to work on your credit history before you apply for a mortgage.

At Executive Lending Group, we answer questions about Credit reports every day. Call us at 4056158543.