A Score that Really Matters: The Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders want to discover two things about you: whether you can repay the loan, and your willingness to pay back the loan. To understand whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they consult your credit score.

The most widely 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). We've written more on FICO here.

Credit scores only consider the info contained in your credit profile. They don't consider your income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was developed to assess willingness to pay while specifically excluding other personal factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. 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 six months. This payment history ensures that there is sufficient information in your report to assign an accurate score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

At Tenby J. Dahman The Dahman Team , we answer questions about Credit reports every day. Call us at 3038627760.