A Score that Really Matters: The Credit Score

Before lenders decide to give you a loan, they want to know if you are willing and able to repay that 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 repay the loan, they look at your credit score.

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

Credit scores only consider the information contained in your credit reports. They never consider your income, savings, down payment amount, or demographic factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when FICO scores were first invented as it is now. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering other demographic factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.

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 history ensures that there is sufficient information in your report to calculate a score. Should you not meet the criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage loan.

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