A Score that Really Matters: Your Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders must discover two things about you: your ability to repay the loan, and your willingness to pay back the loan. To understand your ability to pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more on FICO here.

Your credit score comes from your history of repayment. They never consider your income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when FICO scores were invented as it is in the present day. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding other demographic factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

To get a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your credit to calculate an accurate score. If you don't meet the minimum criteria for getting a score, you may need to establish a credit history before you apply for a mortgage loan.

Turnkey Mortgage Group - NMLS#70160
David Yeary, Mortgage Loan Originator NMLS#1837725 can answer questions about credit reports and many others. Give us a call at 7133252099.

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