A Score that Really Matters: Your Credit Score

Before they decide on the terms of your loan, lenders want to find out two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To understand whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.

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

Credit scores only assess the info in your credit profile. They don't consider income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is in the present day. Credit scoring was developed to assess willingness to repay the loan while specifically excluding any other demographic factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score comes from both the good and the bad of your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

To get a credit score, you 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 credit to build an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

America's Money Source can answer questions about credit reports and many others. Give us a call at 4078987559.