A Score that Really Matters: The Credit Score

Before lenders decide to lend you money, they need to know that you're willing and able to repay that loan. To figure out your ability to repay, they assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.

Credit scores only take into account the info contained in your credit profile. They never take into account income, savings, down payment amount, or factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other irrelevant factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score reflects the good and the bad in your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your report to assign a score. Should you not meet the criteria for getting a score, you may need to work on a credit history prior to applying for a mortgage loan.

America's Money Source can answer your questions about credit reporting. Give us a call: (407) 898-7559.

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