A Score that Really Matters: The Credit Score

Before lenders decide to give you a loan, they need to know that you're willing and able to repay that mortgage loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more on FICO here.

Your credit score is a direct result of your repayment history. They never consider income, savings, amount of down payment, or factors like sex race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other demographic factors.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score results from both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.

Your credit 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 generate a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply.

At Metro Mortgage, we answer questions about Credit reports every day. Give us a call: 866-300-1550.