A Score that Really Matters: Your Credit Score

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Before lenders make the decision to lend you money, they must know if you are willing and able to pay back that mortgage loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.

The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.

Credit scores only assess the information in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess willingness to pay while specifically excluding any other demographic factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to calculate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply for a loan.

McCormick & Co can answer your questions about credit reporting. Call us: 7075261700.