A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must find out two things about you: your ability to repay the loan, and if you will pay it back. To understand your ability to pay back the loan, they assess your income and debt ratio. To assess your willingness to pay back the 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 (high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your history of repayment. They don't consider income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to repay the loan without considering any other personal factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.

Your 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 assign a score. If you don't meet the minimum criteria for getting a score, you might need to establish a credit history before you apply for a mortgage.

Standard Mortgage can answer questions about credit reports and many others. Give us a call: 818-999-6444.