Credit Scoring

Before lenders decide to lend you money, they have to know that you're willing and able to pay back that mortgage loan. To understand your ability to pay back the loan, they look at your income and debt ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more on FICO here.

Your credit score is a direct result of your history of repayment. They don't take into account your income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was developed to assess a borrower's willingness to pay without considering any other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative items in your credit report. Late payments count against your score, but a 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 report to assign an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply for a loan.

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.