A Score that Really Matters: The Credit Score

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

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

Credit scores only consider the information in your credit profile. They never consider your 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 these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's willingness to repay a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score comes from both the good and the bad in your credit history. Late payments will lower your score, but consistently making future payments on time will improve your score.

Your credit 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 credit to build an accurate score. If you don't meet the criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage loan.

At Carter Financial Solutions, we answer questions about Credit reports every day. Give us a call: 8668408745.

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Carter Financial Solutions

2291 W. March Ln Suite A100
Stockton, CA 95207