Credit Scoring

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to know two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your history of repayment. They do not take into account income, savings, down payment amount, or personal factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other demographic factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score is based on the good and the bad of your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.

To get a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is enough information in your credit to generate an accurate score. Should you not meet the criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage loan.

At Pacificwide Lending, we answer questions about Credit reports every day. Give us a call: 9254610500.