Credit Scoring

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can pay back the loan, and your willingness to pay back the loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To calculate your willingness to pay back the mortgage loan, they look at your credit score.

Fair Isaac and Company formulated the original FICO score to assess creditworthines. We've written more about FICO here.

Credit scores only take into account the information contained in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is now. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to repay a loan.

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

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 an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage.

Marshall Lending can answer questions about credit reports and many others. Call us at 9162758775.