Credit Scores

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can repay the loan, and if you will pay it back. To understand whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to repay the mortgage 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. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.

Your credit score comes from your history of repayment. They don't take into account income, savings, down payment amount, or personal factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering other personal factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your credit 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 minimum criteria for getting a credit score, you might need to establish your credit history before you apply for a mortgage 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.