A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a mortgage loan, lenders need to discover two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. For details on FICO, read more here.

Credit scores only take into account the information contained in your credit reports. They don't take into account income, savings, amount of down payment, or factors like gender, race, national origin or marital status. 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 invented as a way to take into account solely that which was relevant to a borrower's willingness to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

Your report should 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 history ensures that there is sufficient information in your report to generate a score. If you don't meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage loan.

Diversified Capital Funding can answer your questions about credit reporting. Give us a call: (925) 226-7130 or (209) 833-3338.