A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: whether you can repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To calculate your willingness to repay the loan, they consult 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). You can find out more on FICO here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding other irrelevant factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score results from both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

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 history ensures that there is enough information in your report to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building up credit history before they apply for a loan.

The Rate Kings Mortgage LLC can answer your questions about credit reporting. Give us a call at 6105723635.