Credit Scoring

Before lenders decide to lend you money, they need to know if you're willing and able to pay back that mortgage. To assess whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they look at 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 (high risk) to 850 (low risk). You can learn more about FICO here.

Credit scores only take into account the information contained in your credit reports. They do not take into account your income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering other demographic factors.

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 is calculated wtih positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

Your credit report must 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 history ensures that there is sufficient information in your credit to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

At Southwest Funding #841
Company NMLS # 303440, we answer questions about Credit reports every day. Give us a call at 5122916100.