A Score that Really Matters: Your Credit Score

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to find out two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. In order to calculate your willingness to repay the loan, they look at your credit score.

Fair Isaac and Company built the first FICO score to assess creditworthines. We've written a lot more about FICO here.

Your credit score is a result of your history of repayment. They don't consider your income, savings, amount of down payment, or factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was developed as a way to consider only that which was relevant to a borrower's likelihood to repay a loan.

Past delinquencies, derogatory 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 information in your credit report. Late payments count against your score, but a record of paying on time will raise 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 report to generate a score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

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