A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a mortgage loan, lenders must know two things about you: your ability to pay back the loan, and if you will pay it back. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company developed the first FICO score to assess creditworthines. You can learn more about FICO here.

Credit scores only consider the info in your credit reports. They never consider income, savings, down payment amount, or personal factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering other personal factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is calculated wtih both positive and negative items in your credit report. Late payments count against you, but a record of paying on time will raise it.

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 payment history ensures that there is enough information in your report to build a score. Some people don't have a long enough credit history to get a credit score. They may need to spend a little time building a credit history before they apply for a loan.

Hometown Financial Services can answer your questions about credit reporting. Call us at (772) 252-6724.