A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a loan, lenders want to know two things about you: your ability to pay back the loan, and if you will pay it back. To understand whether you can pay back the loan, they assess your income and debt ratio. In order to assess your willingness to repay the loan, they consult your credit score.

The most widely used credit scores are 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 learn more on FICO here.

Your credit score is a direct result of your history of repayment. They never consider income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering any other demographic factors.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score results from 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 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 payment history ensures that there is sufficient information in your credit to assign a score. If you don't meet the criteria for getting a score, you may need to establish your credit history before you apply for a mortgage.

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