A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a loan, lenders want to know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. We've written more about FICO here.

Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was developed to assess willingness to repay the loan without considering other personal factors.

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

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your credit to calculate a score. Should you not meet the minimum criteria for getting a score, you might need to establish a credit history prior to applying for a mortgage loan.

At Coastal Mortgage Corp., we answer questions about Credit reports every day. Call us at 504-866-5626.

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