A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and if you will pay it back. To figure out your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

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

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was invented as a way to consider solely that which was relevant to a borrower's likelihood to pay back a loan.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih both positive and negative information in your credit report. Late payments will lower your score, but consistently making future 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 assign a score. Should you not meet the minimum criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage.

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