Credit Scoring

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to find out two things about you: whether you can pay back the loan, and if you are willing to pay it back. To understand whether you can repay, they assess your income and debt ratio. To assess how willing you are 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 (very high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score is a direct result of your repayment history. They do not consider your income, savings, down payment amount, or personal factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is now. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's willingness to repay the lender.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

Your credit 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 history ensures that there is enough information in your credit to calculate an accurate score. Should you not meet the criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage.

Mutual Security Mortgage can answer your questions about credit reporting. Call us at (303) 931-7879.

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