A Score that Really Matters: The Credit Score
Before lenders make the decision to lend you money, they want to know if you are willing and able to pay back that mortgage loan. To understand your ability to repay, they assess your income and debt ratio. To calculate your willingness to repay the mortgage loan, they look at 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). We've written more about FICO here.
Credit scores only assess the info in your credit reports. They never take into account your income, savings, down payment amount, or demographic factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other personal factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score comes from the good and the bad in your credit report. Late payments count against you, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your credit 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.
F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can answer your questions about credit reporting. Call us: 214-300-8756.