A Score that Really Matters: The Credit Score

Before lenders decide to lend you money, they must know that you're willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

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

Your credit score is a direct result of your history of repayment. They don't consider your income, savings, down payment amount, or personal factors like sex race, 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 today. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding any other demographic factors.

Deliquencies, derogatory 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 results from both positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

To get a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your credit to assign a score. Should you not meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage loan.

AmeriBest Mortgage can answer questions about credit reports and many others. Call us: (321) 777-7277.

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