Credit Scoring

Before lenders make the decision to give you a loan, they want to know if you're willing and able to repay that mortgage loan. To understand your ability to repay, they assess your income and debt ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.

The most commonly used credit scores are 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 more on FICO here.

Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was developed as a way to consider only what was relevant to a borrower's likelihood to pay back the lender.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative information in your credit report. Late payments will lower your score, but consistently making future 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 at least six months. This payment history ensures that there is sufficient information in your credit to build a score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

Capacity Lending, LLC can answer questions about credit reports and many others. Give us a call: 469-640-0400.

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