About Your Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders want to discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess your willingness to repay the mortgage loan, they consult your credit score.

The most widely 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 find out more on FICO here.

Your credit score comes from your repayment history. They don't take into account income, savings, amount of down payment, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is today. Credit scoring was developed as a way to consider only that which was relevant to a borrower's willingness to pay back a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score comes from both the good and the bad in your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to calculate an accurate score. Should you not meet the criteria for getting a score, you might need to work on your credit history before you apply for a mortgage.

Coastal Mortgage Corp. can answer questions about credit reports and many others. Call us: 504-866-5626.

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