A Score that Really Matters: Your Credit Score

Before lenders make the decision to give you a loan, they need to know if you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. In order to calculate your willingness to repay the mortgage loan, they consult your credit score.

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

Credit scores only take into account the info in your credit reports. They do not consider your income, savings, down payment amount, or personal factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other demographic factors.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score is calculated from the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to assign 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 a credit history before they apply for a loan.

First Community Bank of Central Al. can answer questions about credit reports and many others. Give us a call: (334) 285-8850.

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