Credit Scores

Before lenders make the decision to lend you money, they need to know if you are willing and able to repay that loan. To understand whether you can repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score is a direct result of your history of repayment. They do not consider your income, savings, amount of down payment, or demographic factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score reflects the good and the bad in your credit history. Late payments count against you, but a record of paying on time will improve it.

Your report should 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 generate a score. If you don't meet the minimum criteria for getting a credit score, you might need to establish a credit history before you apply for a mortgage.

Harbor View Lending* a DBA of Megastar Financial can answer your questions about credit reporting. Give us a call at (207) 571-8034.