A Score that Really Matters: The Credit Score

Before lenders make the decision to lend you money, they want to know that you're willing and able to pay back that loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most commonly 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). For details on FICO, read more here.

Your credit score is a result of your repayment history. They never take into account income, savings, amount of down payment, or personal factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was developed to assess willingness to pay while specifically excluding other demographic factors.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score reflects both the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will improve it.

Your report should have 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 enough information in your report to calculate a score. Should you not meet the criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage.

Financial Edge Mortgage Corp. can answer your questions about credit reporting. Call us: 425-508-9988.