A Score that Really Matters: The Credit Score

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Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: your ability to repay the loan, and your willingness to pay back the loan. To understand whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to pay back the mortgage loan, they look at your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's likelihood to repay the lender.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad in your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your credit to calculate an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to work on your credit history before you apply for a mortgage.

At Dove Lending Group, Inc., we answer questions about Credit reports every day. Call us: 877-210-6899.