A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must find out two things about you: your ability to pay back the loan, and if you will pay it back. To understand whether you can repay, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

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

Your credit score comes from your history of repayment. They never consider income, savings, amount of down payment, or demographic factors like gender, race, national origin 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 now. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's likelihood to repay a loan.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score results from both positive and negative items in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

Your report should 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 payment history ensures that there is sufficient information in your report to generate a score. Should you not meet the minimum criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage.

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