Credit Scoring

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders want to know two things about you: whether you can repay the loan, and if you will pay it back. To understand whether you can repay, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company developed the first FICO score to assess creditworthines. For details on FICO, read more here.

Credit scores only consider the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was invented as a way to consider only what was relevant to a borrower's willingness to repay a loan.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score considers positive and negative items in your credit report. Late payments count against you, but a record of paying on time will improve it.

Your credit 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 calculate a score. Should you not meet the criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage loan.

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