Credit Scores

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders want to find out two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To calculate your willingness to pay back the mortgage loan, they consult 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 (very high risk) to 850 (low risk). You can learn more on FICO here.

Credit scores only take into account the information contained in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's likelihood to pay back a loan.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score is calculated wtih both positive and negative information 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, you must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to assign a score. Some people don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.

At Alternative Mortgage Group, we answer questions about Credit reports every day. Give us a call: 561-395-4264.