A Score that Really Matters: The Credit Score

Before lenders decide to give you a loan, they must know that you are willing and able to pay back that mortgage. 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. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.

Credit scores only take into account the info in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's willingness to pay back a loan.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is based on the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will raise it.

For the agencies to calculate a credit score, borrowers must have an active credit account with 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 criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage loan.

Nationwide Home Loans can answer questions about credit reports and many others. Give us a call: 5626935048.