Credit Scoring

Before they decide on the terms of your mortgage loan, lenders must know two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess 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 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.

Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to pay without considering other irrelevant factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score comes from the good and the bad of your credit report. Late payments lower your 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 six months of payment history. This payment history ensures that there is sufficient information in your credit to assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply for a loan.

Harbor View Lending* a DBA of Megastar Financial can answer your questions about credit reporting. Call us: (207) 571-8034.