A Score that Really Matters: Your Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders must know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To figure out your ability to repay, lenders assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they consult your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.

Credit scores only consider the information in your credit profile. They do not take into account income, savings, amount of down payment, or factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is today. Credit scoring was developed to assess a borrower's willingness to pay without considering any other demographic factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score reflects both the good and the bad in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

Your credit report should 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 payment history ensures that there is enough information in your report to generate an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage.

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