A Score that Really Matters: The Credit Score

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

Fair Isaac and Company built the first FICO score to help lenders assess creditworthiness. You can find out more about FICO here.

Your credit score comes from your repayment history. They do not consider your income, savings, amount of down payment, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to take into account 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 the number of credit inquiries are all calculated into credit scoring. Your score is based on the good and the bad of your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your credit to generate a score. Should you not meet the criteria for getting a score, you might need to establish your credit history prior to applying for a mortgage.

At TriState Mortgage Corporation (NMLS 76453), we answer questions about Credit reports every day. Call us: (203) 284-8022.