A Score that Really Matters: The Credit Score

Before they decide on the terms of your loan, lenders must discover two things about you: whether you can pay back the loan, and if you will pay it back. To assess your ability to repay, they assess your income and debt ratio. In order to calculate your willingness to repay the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The 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 repayment history. They don't consider income, savings, amount of down payment, or factors like sex race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to pay without considering other irrelevant factors.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is calculated from the good and the bad in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

Your credit 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 credit to build a score. Should you not meet the minimum criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage loan.

At Foxfield Financial, we answer questions about Credit reports every day. Give us a call at 7205988300.