Credit Scores

Before they decide on the terms of your loan, lenders need to find out two things about you: whether you can repay the loan, and if you are willing to pay it back. To assess your ability to repay, lenders assess your debt-to-income ratio. To calculate your willingness to pay back the loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.

Your credit score comes from your repayment history. They do not consider your income, savings, amount of down payment, or factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account only what was relevant to a borrower's likelihood to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score reflects the good and the bad of your credit history. Late payments lower your score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your credit to calculate an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply for a loan.

Southwest Funding #841
Company NMLS # 303440 can answer questions about credit reports and many others. Call us at 5122916100.