Credit Scores

Before deciding on what terms they will offer you a loan, lenders want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. In order to calculate your willingness to repay the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your 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 history of repayment. They never consider income, savings, amount of down payment, or demographic factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is in the present day. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.

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 calculated wtih positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise 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 enough information in your report to calculate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on a credit history prior to applying for a mortgage.

F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can answer questions about credit reports and many others. Give us a call at 214-300-8756.