About Your Credit Score

Before deciding on what terms they will offer you a mortgage loan, lenders need to know two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's willingness to repay the lender.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score is calculated from the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will raise it.

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

Tenby J. Dahman The Dahman Team can answer your questions about credit reporting. Give us a call at 3038627760.