Credit Scoring

Before they decide on the terms of your loan, lenders want to discover two things about you: whether you can pay back the loan, and if you will pay it back. To assess your ability to pay back the loan, they 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 FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. 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 repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other personal factors.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score results from both positive and negative items in your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.

Your credit report should 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 calculate an accurate score. Should you not meet the minimum criteria for getting a score, you might need to establish your credit history before you apply for a mortgage loan.

At Omni Mortgage Corp., we answer questions about Credit reports every day. Give us a call at 7184417000.