A Score that Really Matters: Your Credit Score
Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must know two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To understand your ability to pay back the loan, they look at 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 FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.
Your credit score is a result of your history of repayment. They never consider your 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 to assess a borrower's willingness to repay the loan without considering any other demographic factors.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score is based on the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
Your credit report must contain 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 build a score. Should you not meet the criteria for getting a score, you might need to work on a credit history prior to applying for a mortgage loan.
At PREMIERE MORTGAGE SERVICES INC., we answer questions about Credit reports every day. Give us a call at 978-422-2311.
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