Credit Scores

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Before lenders decide to lend you money, they want to know if you're willing and able to pay back that mortgage loan. To understand your ability to repay, they look at your income and debt ratio. In order to calculate your willingness to repay the mortgage loan, they look at your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score is a direct result of your history of repayment. They never take into account your income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding other demographic factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score results from both positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will raise 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 build an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.