Credit Scores

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: your ability to repay the loan, and how committed you are to repay the loan. To understand your ability to repay, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.

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

Your credit score comes from your repayment history. They never take into account income, savings, down payment amount, or demographic factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other personal factors.

Deliquencies, 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 reflects the good and the bad of your credit history. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your 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 enough information in your credit to generate a score. If you don't meet the criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage.

Hometown Financial Services can answer questions about credit reports and many others. Give us a call: (772) 252-6724.