A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can repay the loan, and if you will pay it back. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more on FICO here.

Credit scores only take into account the info in your credit profile. They don't take into account income, savings, amount of down payment, or factors like gender, 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 in the present day. Credit scoring was envisioned as a way to assess willingness to pay without considering other personal factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad of your credit history. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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 history ensures that there is enough information in your report to build an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building a credit history before they apply.

Carter Financial Solutions can answer questions about credit reports and many others. Give us a call at 8668408745.

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Carter Financial Solutions

2291 W. March Ln Suite A100
Stockton, CA 95207