Credit Scoring

Before lenders decide to give you a loan, they have to know if you're willing and able to pay back that mortgage loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to assess your willingness to pay back the loan, they consult your credit score.

The most commonly 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). We've written a lot more about FICO here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is in the present day. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's willingness to repay a loan.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

To get a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building up credit history before they apply.

At Wires of Energy, we answer questions about Credit reports every day. Call us: 4058873713.