A Score that Really Matters: The Credit Score

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Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to find out two things about you: whether you can repay the loan, and your willingness to repay the loan. To figure out 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.

Fair Isaac and Company developed the original FICO score to help lenders assess creditworthiness. You can learn more on FICO here.

Credit scores only assess the information contained in your credit reports. They never take into account your income, savings, down payment amount, or factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.

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

Your credit 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 an accurate 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 credit history before they apply for a loan.

G & M Wolkenberg Inc. can answer your questions about credit reporting. Call us at 516 536-2525.