A Score that Really Matters: The Credit Score
Before they decide on the terms of your loan (which they base on their risk), lenders must find out two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The 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 history of repayment. They never take into account income, savings, amount of down payment, or personal factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other demographic factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is based on the good and the bad in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.
To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to assign an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage.
F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can answer your questions about credit reporting. Call us: 214-300-8756.