A Score that Really Matters: Your Credit Score

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Before lenders make the decision to give you a loan, they need to know that you're willing and able to repay that mortgage. To assess whether you can repay, they look at your income and debt ratio. To assess your willingness to repay the mortgage loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more on FICO here.

Credit scores only consider the information contained in your credit reports. They never take into account your income, savings, down payment amount, or demographic factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding any other irrelevant factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score comes from the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will improve it.

To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.

At G & M Wolkenberg Inc., we answer questions about Credit reports every day. Give us a call at 516 536-2525.