A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a loan, lenders must find out two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they consult your credit score.

The most commonly used credit scores are called 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.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's willingness to pay back the lender.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score results from positive and negative information in your credit report. Late payments count against you, but a record of paying on time will raise it.

Your report should 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 history ensures that there is sufficient information in your credit to calculate a score. If you don't meet the minimum criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage.

Southwest Funding #841
Company NMLS # 303440 can answer questions about credit reports and many others. Give us a call: 5122916100.