A Score that Really Matters: Your Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders want to find out two things about you: whether you can repay the loan, and how committed you are to repay the loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they look at your credit score.

Fair Isaac and Company built the original FICO score to help lenders assess creditworthines. We've written more about FICO here.

Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was developed as a way to take into account only what was relevant to a borrower's likelihood to repay the lender.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score considers positive and negative items in your credit report. Late payments count against you, but a record of paying on time will raise it.

Your report must 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 payment history ensures that there is sufficient information in your credit to generate a score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.

Tenby J. Dahman can answer questions about credit reports and many others. Give us a call: (303) 862-7760.