About Your Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To understand whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they look at 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). We've written a lot more on FICO here.

Your credit score is a direct result of your repayment history. They never take into account income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider solely that which was relevant to a borrower's willingness to repay the lender.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih both positive and negative information in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your credit to generate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage.

Equity Edge Mortgage, Inc. can answer your questions about credit reporting. Give us a call: 719-425-2226.