About Your Credit Score

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to find out two things about you: your ability to pay back the loan, and if you will pay it back. To assess whether you can 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 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). We've written a lot more on FICO here.

Your credit score is a direct result of your repayment history. They don't consider your income, savings, amount of down payment, or personal factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's willingness to repay the lender.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score considers 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.

To get a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your report to generate a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building credit history before they apply for a loan.

Great Mortgage NMLS#478647 can answer your questions about credit reporting. Give us a call: 708.966.9005.

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