Credit Scores

Before they decide on the terms of your loan, lenders must find out two things about you: your ability to repay the loan, and your willingness to repay the loan. To understand your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most widely 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 find out more about FICO here.

Credit scores only consider the info in your credit reports. They don't consider 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 invented as a way to consider only that which was relevant to a borrower's willingness to pay back a loan.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score comes from both the good and the bad in your credit history. Late payments lower your score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your credit to generate a score. If you don't meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.

American Mortgage Advisers, Inc can answer your questions about credit reporting. Call us at 2147390569.