Credit Scoring

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Before deciding on what terms they will offer, lenders want to find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To understand your ability to repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only consider the info contained in your credit reports. They never consider your income, savings, amount of down payment, or factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, derogatory 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 will lower your credit score, but consistently making future payments on time will improve your score.

Your credit report must contain 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 payment history ensures that there is sufficient information in your credit to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building up a credit history before they apply for a loan.

At First Mortgage Corporation, we answer questions about Credit reports every day. Call me: 708-647-5252.