Credit Scores

Before deciding on what terms they will offer you a mortgage loan, lenders want to discover two things about you: your ability to repay the loan, and your willingness to pay back the loan. To assess your ability to repay, they look at your debt-to-income ratio. To assess your willingness to repay the loan, they consult 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.

Your credit score comes from your history of repayment. They do not consider income, savings, down payment amount, or personal factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was envisioned as a way to consider only that which was relevant to a borrower's likelihood to repay the lender.

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

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to assign an accurate score. If you don't meet the criteria for getting a credit score, you might need to work on your credit history before you apply for a mortgage loan.

At North American Financial, we answer questions about Credit reports every day. Call us: 702-524-1376.