Credit Scoring

Before they decide on the terms of your mortgage loan, lenders must know two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To understand your ability to pay back the loan, 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 Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.

Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was invented as a way to consider only what was relevant to a borrower's willingness to repay a loan.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from both the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will raise it.

Your report should 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 payment history ensures that there is enough information in your credit to generate a score. If you don't meet the criteria for getting a score, you might need to establish a credit history before you apply for a mortgage loan.

At Hill Valley Financial Services Inc., we answer questions about Credit reports every day. Give us a call: 503-657-3311.