A Score that Really Matters: The Credit Score

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must know two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. You can learn more about FICO here.

Your credit score is a result of your repayment history. They don't consider income, savings, amount of down payment, or factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's willingness to repay the lender.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments count against you, but a record of paying on time will improve it.

Your credit 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 report to assign an accurate score. Some people don't have a long enough credit history to get a credit score. They should spend some time building up a credit history before they apply for a loan.

At Custom Lending Group, we answer questions about Credit reports every day. Call us at 7072522700.