A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders want to know two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To assess 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 formulated the first FICO score to assess creditworthines. We've written more about FICO here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to consider only what was relevant to a borrower's likelihood to repay a loan.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score comes from both the good and the bad of your credit history. Late payments will lower your credit score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your credit to generate a score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.

Metro Mortgage can answer questions about credit reports and many others. Give us a call at 866-300-1550.