Credit Scoring

Before they decide on the terms of your loan, lenders want to know two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most widely 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 a lot more about FICO here.

Credit scores only consider the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other demographic factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score comes from both the good and the bad of 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.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your credit to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.

AmeriBest Mortgage can answer your questions about credit reporting. Give us a call at 3217777277.