A Score that Really Matters: The Credit Score

Before lenders make the decision to give you a loan, they want to know that you are willing and able to pay back that mortgage loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

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

Credit scores only take into account the information in your credit profile. They don't consider income or personal characteristics. 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 today. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

Your credit report must contain 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 build a score. Should you not meet the minimum criteria for getting a score, you might need to establish your credit history before you apply for a mortgage.

Pacificwide Lending can answer your questions about credit reporting. Call us at 9254610500.