Credit Scoring

Before they decide on the terms of your mortgage loan, lenders must find out two things about you: your ability to pay back the loan, and your willingness to pay back the loan. To assess your ability to pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.

Your credit score is a result of your history of repayment. They never take into account income, savings, amount of down payment, or personal factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other demographic factors.

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

Your report must 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 history ensures that there is sufficient information in your report to calculate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.

Longhorn Mortgage can answer your questions about credit reporting. Call us at 512-302-9410.

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