Credit Scoring

Before lenders make the decision to lend you money, they want to know if you're willing and able to repay that mortgage. To assess whether you can repay, they assess your income and debt 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 (high risk) to 850 (low risk). We've written more on FICO here.

Credit scores only assess the information contained in your credit reports. They do not consider income, savings, down payment amount, or factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's likelihood to repay a loan.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score considers both positive and negative information in your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your report to calculate a score. Should you not meet the minimum criteria for getting a score, you might need to establish your credit history prior to applying for a mortgage.

Pacificwide Lending can answer questions about credit reports and many others. Call us: 9254610500.