A Score that Really Matters: Your Credit Score

Before lenders make the decision to lend you money, they must know if you're willing and able to repay that mortgage. To assess your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (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 do not take into account income, savings, amount of down payment, or factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were invented as it is in the present day. Credit scoring was developed as a way to consider only what was relevant to a borrower's likelihood to pay back a loan.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score is based on both the good and the bad in your credit history. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

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 history ensures that there is enough information in your credit to generate a score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

At American Mortgage Advisers, Inc, we answer questions about Credit reports every day. Call us at 2148657442.