A Score that Really Matters: The Credit Score

Before lenders decide to lend you money, they need to know that you are willing and able to pay back that mortgage loan. To understand whether you can repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

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

Credit scores only consider the info in your credit reports. They never consider your income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to pay back the lender.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.

Your report should 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 a score. If you don't meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.

Secure Mortgage Company can answer questions about credit reports and many others. Call us: (713) 667-5472.