A Score that Really Matters: Your Credit Score

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Before they decide on the terms of your loan (which they base on their risk), lenders want to find out two things about you: whether you can repay the loan, and how committed you are to repay the loan. To understand your ability to pay back the loan, they look at your income and debt ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.

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

Your credit score comes from your repayment history. They don't take into account income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to pay back the lender.

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

Your credit report must 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 history ensures that there is enough information in your credit to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.

Anita Martinez-Trumm can answer your questions about credit reporting. Call us: 303-596-8672.