Credit Scores

Before lenders decide to give you a loan, they want to know if you're willing and able to pay back that mortgage. To understand whether you can pay back the loan, they assess your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they consult your credit score.

The most widely 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.

Credit scores only assess the information in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like sex race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other demographic factors.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score is calculated from the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will improve it.

Your report must 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 report to assign a score. Should you not meet the criteria for getting a score, you might need to establish a credit history before you apply for a mortgage.

At Harbor View Lending* a DBA of Megastar Financial, we answer questions about Credit reports every day. Give us a call at (207) 571-8034.