Credit Scores

Before deciding on what terms they will offer you a loan, lenders want to discover two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most widely 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 more on FICO here.

Credit scores only take into account the information in your credit reports. They never take into account your income, savings, down payment amount, or factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was invented as a way to consider solely that which was relevant to a borrower's willingness to repay the lender.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad of your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

To get a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your report to generate a score. If you don't meet the criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage.

At AmeriBest Mortgage, we answer questions about Credit reports every day. Call us: 3217777277.