Credit Scores

Before deciding on which terms your lender will offer you a loan, which is based on risk, they usually want to know two things about you: your ability to pay back the loan and your willingness to pay back the loan. First, they examine your income-to-debt obligation ratio. And secondly, they look at your willingness to pay back the loan, for that they consult your credit score.

The most widely used credit scores are FICO Scores. This method was developed by Fair Isaac & Company Inc. Your FICO Score is rated between 350, which is high risk, and 850, which is low risk.

Credit Scores reflect only the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality, or marital status. Credit Scoring was developed, in a way, as to only reflect what is relevant to someone's willingness to repay a loan.

Past delinquencies, negative payment behavior, current level of debt, length of credit history, types of credit, and number of inquires are all considered in credit scores. Your score contains factors that are both positive and negative in your credit report. Keep in mind, late payments will lower your score, however establishing or even re-establishing a good track record of making payments on time will raise your score.

Various portions of your credit history are given different weights. 35% of your FICO score is based on your specific payment history. 30% is current level of indebtedness, 15% each, is the time your open credit has been in use, and types of credit available to you. Finally 5% is pursuit of new credit.

Your credit report must contain at least one account which has been open for 6 or more months, and at least one account that has been updated in the past 6 months, for you to get a credit score. If this is not the case, you may need to establish a credit history, before applying for a mortgage.