A Score that Really Matters: The Credit Score

Before lenders make the decision to give you a loan, they want to know if you are willing and able to pay back that loan. To understand your ability to pay back the loan, they look at your income and debt ratio. In order to calculate your willingness to repay the mortgage loan, they consult your credit score.

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

Credit scores only assess the information contained in your credit profile. They never consider your income, savings, down payment amount, or demographic factors like sex ethnicity, nationality or marital status. 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 the lender.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

For the agencies to calculate 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 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.

Financial Edge Mortgage Corp. can answer your questions about credit reporting. Give us a call: 425-508-9988.

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