Credit Scoring

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can pay back the loan, and your willingness to pay back the loan. To assess your ability to repay, lenders assess your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more on FICO here.

Your credit score is a direct result of your repayment history. They do not take into account income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to consider solely what was relevant to a borrower's willingness to pay back a loan.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is based on the good and the bad in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

To get a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your report to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.

At Reliance Mortgage Service, Inc, we answer questions about Credit reports every day. Call us at 562 320-0510.

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