A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must know two things about you: whether you can pay back the loan, and if you will pay it back. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding any other demographic factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score considers both positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

Your report should have 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 sufficient information in your report to generate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on your credit history before you apply for a mortgage.

Omni Mortgage Corp. can answer your questions about credit reporting. Give us a call at 7184417000.