A Score that Really Matters: The Credit Score

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to know two things about you: whether you can pay back the loan, and your willingness to pay back the loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

The most commonly 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 more about FICO here.

Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score considers positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

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 enough information in your report to build a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply for a loan.

At Harbor View Lending* a DBA of Megastar Financial, we answer questions about Credit reports every day. Give us a call: (207) 571-8034.