A Score that Really Matters: The Credit Score
Before lenders make the decision to give you a loan, they have to know that you are willing and able to pay back that mortgage. To assess your ability to pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about FICO here.
Your credit score comes from your repayment history. They never consider your income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering any other irrelevant factors.
Past delinquencies, 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 both the good and the bad in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
To get a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to generate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to establish your credit history before you apply for a mortgage loan.
At F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org), we answer questions about Credit reports every day. Give us a call: 214-300-8756.