A Score that Really Matters: The Credit Score

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to pay back the loan, and your willingness to pay back the loan. To assess your ability to repay, they look at your income and debt ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.

The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more on FICO here.

Your credit score comes from your repayment history. They do not take into account your income, savings, amount of down payment, or demographic factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding other personal factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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

At CHASE MORTGAGE, Inc. #317430, we answer questions about Credit reports every day. Give us a call at 4357556622.