A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a loan, lenders must discover two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To assess how willing you are to repay, they use 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.

Credit scores only consider the info in your credit reports. They don't take into account income, savings, down payment amount, or personal factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to a borrower's likelihood to repay a loan.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score reflects the good and the bad of your credit history. Late payments lower your credit score, but consistently making future payments on time will raise your score.

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 sufficient information in your report to build a score. If you don't meet the minimum criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage.

Custom Lending Group can answer your questions about credit reporting. Call us at (707) 252-2700.