A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a loan, lenders must discover two things about you: your ability to repay the loan, and if you will pay it back. To assess your ability to repay, lenders assess your debt-to-income ratio. In order to assess your willingness to repay the loan, they look at your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's likelihood to pay back a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score is calculated from both the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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 folks don't have a long enough credit history to get a credit score. They should spend a little time building up a credit history before they apply for a loan.

Bob Rutledge Mortgage can answer questions about credit reports and many others. Call us: 3149139678.