A Score that Really Matters: Your Credit Score

Before lenders make the decision to lend you money, they have to know if you're willing and able to pay back that loan. To assess whether you can repay, they look at your income and debt 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 were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.

Credit scores only assess the info contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to pay back the lender.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score results from both positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

Your 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 report to build an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage loan.

Custom Lending Group can answer your questions about credit reporting. Call us: 7072522700.