A Score that Really Matters: The Credit Score

Before they decide on the terms of your mortgage loan, lenders must find out two things about you: your ability to repay the loan, and if you will pay it back. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. You can learn more about FICO here.

Credit scores only consider the information in your credit profile. They never take into account income, savings, amount of down payment, or personal 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 take into account solely what was relevant to a borrower's willingness to pay back the lender.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

To get a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to generate an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage.

Foxfield Financial can answer questions about credit reports and many others. Give us a call: 720-598-8300.