A Score that Really Matters: Your Credit Score

Before they decide on the terms of your loan, lenders must discover two things about you: your ability to repay the loan, and how committed you are to repay the loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to pay back 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. 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 reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were invented as it is today. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's likelihood to repay a loan.

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

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to calculate an accurate score. Some people don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.

The Rate Kings Mortgage LLC can answer questions about credit reports and many others. Call us: 6105723635.