Credit Scoring

Before lenders make the decision to lend you money, they have to know that you are willing and able to repay that mortgage loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness 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 (very high risk) to 850 (low risk). We've written a lot more on 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 like these. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other personal factors.

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

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This payment 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 credit score, you may need to work on a credit history prior to applying for a mortgage loan.

At Prime Capital Mortgage Corp, we answer questions about Credit reports every day. Give us a call at 248-644-1200.

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