Credit Scores

Before they decide on the terms of your mortgage loan, lenders want to discover two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To assess your ability to repay, 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 were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.

Credit scores only consider the information contained in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's willingness to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score comes from the good and the bad of your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your report should have 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 assign an accurate score. If you don't meet the criteria for getting a credit score, you might need to establish your credit history before you apply for a mortgage.

At Southwest Funding #841
Company NMLS # 303440, we answer questions about Credit reports every day. Call us: 5122916100.