Credit Scoring

Before lenders decide to lend you money, they need to know if you're willing and able to repay that mortgage. To understand your ability to pay back the loan, they assess 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 FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.

Credit scores only consider the information contained in your credit reports. They do not consider income, savings, down payment amount, or personal factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was invented as a way to take into account only what was relevant to a borrower's likelihood to repay a loan.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.

To get a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your report to calculate a score. Some people don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply.

American Mortgage Advisers, Inc can answer questions about credit reports and many others. Give us a call: 2147390569.