A Score that Really Matters: Your Credit Score

Before lenders decide to give you a loan, they must know that you're willing and able to pay back that mortgage 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. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was developed to assess a borrower's willingness to pay without considering any other irrelevant factors.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score reflects the good and the bad in your credit history. Late payments count against your score, but a record of paying on time will raise it.

Your credit 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 payment history ensures that there is enough information in your credit to assign an accurate score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building a credit history before they apply for a loan.

At The Rate Kings Mortgage LLC, we answer questions about Credit reports every day. Give us a call at 6105723635.