Mortgage Application Tips #4 - Credit Scores

Before they decide on the terms of your loan, lenders want to know two things about you: your ability to repay the loan, and if you will pay it back. To assess whether you can pay back the loan, they look at your income to debt ratio which we talked about last week. In order to assess your willingness to pay back the loan, they look at your credit score.

To learn how to improve your credit score, view this article.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk).

Your credit score comes from your history of repayment. They never take into account your income, savings, amount of down payment, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to consider solely what was relevant to a borrower's likelihood to repay the lender.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score results from both positive and negative items in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

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

For assistance on applying for your mortgage, give us a call. 887-828-8851.

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