Credit Scores

Before lenders decide to give you a loan, they have to know if you're willing and able to repay that loan. To understand your ability to pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score is a direct result of your history of repayment. They do not consider your income, savings, down payment amount, or factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will raise it.

Your report must have 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 enough information in your report to build an accurate score. If you don't meet the minimum criteria for getting a score, you may need to establish your credit history prior to applying for a mortgage.

Tenby J. Dahman can answer your questions about credit reporting. Call us: 3038627760.