A Score that Really Matters: The Credit Score

Before lenders make the decision to lend you money, they must know that you are willing and able to pay back that mortgage loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness to repay the loan, they consult your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more about FICO here.

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

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is based on both the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will raise it.

To get a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your credit to build an accurate score. Should you not meet the minimum criteria for getting a score, you might need to establish your credit history before you apply for a mortgage.

Custom Lending Group can answer questions about credit reports and many others. Call us: 7072522700.