Credit Scores

Before lenders make the decision to give you a loan, they want to know if you're willing and able to pay back that mortgage loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To calculate your willingness to repay the loan, they consult your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Credit scores only take into account the info contained in your credit profile. They do not take into account your income, savings, down payment amount, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was developed as a way to take into account solely that which was relevant to a borrower's likelihood to repay the lender.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score is based on the good and the bad of your credit history. Late payments will lower your credit score, but consistently making future payments on time will improve your score.

Your credit report should 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 build a score. Should you not meet the minimum criteria for getting a score, you may need to work on a credit history before you apply for a mortgage loan.

The Mortgage Exchange Service LLC can answer your questions about credit reporting. Call us at 703.255-5810.

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