A Score that Really Matters: Your Credit Score

Before lenders decide to lend you money, they must know that you are willing and able to repay that loan. To assess your ability to pay back the loan, lenders assess 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 called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other irrelevant factors.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score reflects both the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your credit to build a score. If you don't meet the criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage.

Mutual Security Mortgage can answer questions about credit reports and many others. Give us a call: 3039317879.