Credit Scoring

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

The most widely 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). For details on FICO, read more here.

Your credit score comes from your repayment history. They don't consider income, savings, amount of down payment, or factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was developed as a way to consider solely that which was relevant to a borrower's willingness to repay the lender.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score considers both 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, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your report to build an accurate score. Should you not meet the criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage.

At PREMIERE MORTGAGE SERVICES INC., we answer questions about Credit reports every day. Call us at 978-422-2311.

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