Credit Scoring

Before deciding on what terms they will offer you a mortgage loan, lenders want to find out two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To understand your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness to repay the loan, they look at your credit score.

The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to repay a loan.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih positive and negative information 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 raise your score.

Your 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 credit to assign an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.

Savers Home Loans can answer questions about credit reports and many others. Give us a call at (800) 974-0509.