A Score that Really Matters: Your Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders need to find out two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to pay back the loan, they look at 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 (high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was developed as a way to consider only what was relevant to a borrower's willingness to pay back the lender.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from both the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.

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 credit to calculate an accurate score. If you don't meet the criteria for getting a score, you may need to work on your credit history before you apply for a mortgage loan.

At Washingtonian Mortgage, LLC, we answer questions about Credit reports every day. Call us at 410-451-2755.