Credit Scoring

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Before they decide on the terms of your loan (which they base on their risk), lenders need to know two things about you: whether you can repay the loan, and your willingness to repay the loan. To figure out your ability to repay, lenders look at your debt-to-income ratio. To calculate your willingness to repay the loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score comes from your history of repayment. They don't consider your income, savings, amount of down payment, or factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other irrelevant factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score considers positive and negative information in your credit report. Late payments count against you, but a record of paying on time will improve it.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is enough information in your report to assign an accurate score. If you don't meet the minimum criteria for getting a score, you might need to establish your credit history before you apply for a mortgage loan.

Alternative Mortgage Solutions, Inc. can answer questions about credit reports and many others. Call us at 314-835-1195.