Credit Scoring

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

The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.

Credit scores only take into account the information contained in your credit profile. They do not take into account your income, savings, amount of down payment, or demographic factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's willingness to repay the lender.

Your current debt load, 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 score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to calculate a score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

PREMIERE MORTGAGE SERVICES, INC. can answer your questions about credit reporting. Give us a call at 978-422-2311.

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