Credit Scores

Before they decide on the terms of your mortgage loan, lenders want to find out two things about you: your ability to pay back the loan, and your willingness to pay back the loan. To assess your ability to repay, they assess your income and debt ratio. In order to assess your willingness to repay the loan, they consult your credit score.

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.

Credit scores only take into account the information contained in your credit profile. They never consider your income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other personal factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, you 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 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.

At Nationwide Home Loans, we answer questions about Credit reports every day. Call us at 5626935048.