A Score that Really Matters: The Credit Score

Before lenders make the decision to give you a loan, they have to know if you are willing and able to repay that mortgage loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company calculated the original FICO score to assess creditworthines. We've written a lot more about FICO here.

Credit scores only take into account the info in your credit reports. They don't take into account income, savings, amount of down payment, or personal factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay without considering other irrelevant factors.

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

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 payment history ensures that there is enough information in your report to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They should spend some time building credit history before they apply for a loan.

Foxfield Financial can answer questions about credit reports and many others. Give us a call at 720-598-8300.

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