Credit Scores

Before lenders make the decision to lend you money, they need to know if you're willing and able to pay back that mortgage loan. To assess whether you can pay back the loan, they look at your income and debt ratio. In order 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. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.

Credit scores only take into account the information contained in your credit profile. They never consider your 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 to assess willingness to repay the loan without considering other personal factors.

Deliquencies, 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 count against your score, but a record of paying on time will raise it.

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 sufficient information in your credit to assign an accurate score. Should you not meet the minimum criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage loan.

Ashok Lakshmanan can answer questions about credit reports and many others. Call us: 630-717-3600.


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