A Score that Really Matters: The Credit Score

Before lenders decide to lend you money, they must know if you're willing and able to pay back that loan. To assess whether you can repay, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they look at your credit score.

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

Credit scores only consider the information contained in your credit reports. They never take into account your income, savings, amount of down payment, or personal factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was invented as a way to consider only what was relevant to a borrower's likelihood to pay back the lender.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers both positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.

Your credit report must 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 sufficient information in your credit to assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should spend some time building credit history before they apply for a loan.

Hometown Financial Services can answer questions about credit reports and many others. Call us at (772) 252-6724.