Credit Scoring

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

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only assess the information contained in your credit reports. They never consider income, savings, down payment amount, or demographic factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other personal factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers both positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will improve it.

Your credit report must have 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 history ensures that there is enough information in your credit to calculate an accurate score. Should you not meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.

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