Credit Scoring

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

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

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. 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 consider solely what was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score comes from the good and the bad in your credit report. Late payments lower your score, but consistently making future payments on time will raise 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 sufficient information in your credit to build an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building credit history before they apply for a loan.

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