A Score that Really Matters: Your Credit Score

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

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more on FICO here.

Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess willingness to pay without considering any other personal factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to assign a 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 loan.

At Pacificwide Lending, we answer questions about Credit reports every day. Call us at 9254610500.