Credit Scoring

Before they decide on the terms of your loan (which they base on their risk), lenders must discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To understand whether you can pay back the loan, they look at your income and debt ratio. In order to assess your willingness to repay the mortgage loan, they consult 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 (very high risk) to 850 (low risk). You can learn more about FICO here.

Your credit score comes from your repayment history. They don't take into account your income, savings, amount of down payment, or personal factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is today. Credit scoring was developed as a way to consider only that which was relevant to a borrower's willingness to pay back the lender.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

For the agencies to calculate a credit score, you 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. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.

At Secure Mortgage Company, we answer questions about Credit reports every day. Give us a call at (713) 667-5472.