Credit Scoring

Before lenders make the decision to give you a loan, they must know that you are willing and able to pay back that mortgage loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use 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). For details on FICO, read more here.

Your credit score is a direct result of your history of repayment. They never take into account your income, savings, down payment amount, or demographic factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess a borrower's willingness to pay without considering any other demographic factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score is calculated wtih both positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.

Southwest Funding #841 can answer questions about credit reports and many others. Give us a call at (512) 291-6100.