Credit Scoring

Before deciding on what terms they will offer you a 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 your ability to repay, they look at your income and debt ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.

Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. We've written a lot more on FICO here.

Credit scores only take into account the information in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider only that which was relevant to a borrower's likelihood to repay 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 of your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

Your credit 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 enough information in your credit to assign a score. Should you not meet the minimum criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage.

Financial Edge Mortgage Corp. can answer questions about credit reports and many others. Give us a call at 425-508-9988.

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