Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders need to discover two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To understand whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to pay back the mortgage 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 (very high risk) to 850 (low risk). We've written more about FICO here.

Credit scores only take into account the info in your credit reports. They do not consider your income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's willingness to repay a loan.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your report should contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This payment history ensures that there is enough information in your report to assign a score. Should you not meet the criteria for getting a score, you may need to establish your credit history before you apply for a mortgage.

Executive Lending Group, LLC can answer questions about credit reports and many others. Give us a call: (816) 525-8000 & (81.

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