Credit Scoring

Before lenders make the decision to lend you money, they must know that you're willing and able to repay that loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your 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 reports. They never consider income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering any other demographic factors.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score is calculated wtih positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will raise 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 report to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to work on your credit history before you apply for a mortgage loan.

Hometown Financial Services can answer your questions about credit reporting. Give us a call: (772) 252-6724.