A Score that Really Matters: The Credit Score
Before lenders decide to lend you money, they want to know that you're willing and able to pay back that mortgage loan. To understand whether you can repay, they assess your income and debt ratio. To assess your willingness to repay, they use 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.
Credit scores only consider the information 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 dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's willingness to pay back the lender.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is based on both the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your report must 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 sufficient information in your report to build a score. Should you not meet the criteria for getting a credit score, you might need to establish a credit history before you apply for a mortgage.
Saab Mortgage can answer your questions about credit reporting. Give us a call: 703-288-0777.
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