Credit Scoring

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Before lenders decide to lend you money, they want to know that you are willing and able to pay back that mortgage loan. To assess whether you can repay, they look at your income and debt ratio. In order to calculate your willingness to repay the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only assess the info contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was developed as a way to consider solely what was relevant to a borrower's likelihood to pay back the lender.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score results from both positive and negative items in your credit report. Late payments count against you, but a record of paying on time will improve 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 history ensures that there is enough information in your report to assign an accurate score. Should you not meet the criteria for getting a score, you might need to work on your credit history before you apply for a mortgage.

At Action Lending, we answer questions about Credit reports every day. Call us: (714) 935-0775.

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