Credit Scoring

Before lenders decide to lend you money, they need to know that you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your history of repayment. They do not take into account income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad 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.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score results from both positive and negative items in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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 enough information in your credit to generate a score. If you don't meet the minimum criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage.

The Mortgage Exchange Service LLC can answer questions about credit reports and many others. Call us: 703.255-5810.

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