A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a loan, lenders need to discover two things about you: your ability to repay the loan, and if you will pay it back. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company built the first FICO score to help lenders assess creditworthines. You can learn more on FICO 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 bad a word when FICO scores were first invented as it is now. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering any other demographic factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both 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.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.

MGM Mortgage Inc. can answer your questions about credit reporting. Give us a call: 800-555-6144.