A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a mortgage loan, lenders must find out two things about you: whether you can repay the loan, and if you will pay it back. To assess your ability to pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.

Your credit score comes from your history of repayment. They do not take into account income, savings, down payment amount, or factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was invented as a way to take into account only that which was relevant to a borrower's willingness to repay a loan.

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

To get a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your report to calculate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to establish a credit history before you apply for a mortgage.

Metro Mortgage can answer questions about credit reports and many others. Call us at 866-300-1550.