Credit Scores

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To calculate 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. Your 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 information contained in your credit reports. They don't take into account your income, savings, amount of down payment, or personal factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other demographic factors.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score results from both positive and negative items in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

Your credit report must contain 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 sufficient information in your credit to calculate 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.

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

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