A Score that Really Matters: Your Credit Score

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To understand your ability to repay, they assess your income and debt ratio. To assess your willingness to pay back the mortgage loan, they look at your credit score.

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

Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to assess willingness to pay without considering any 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 will lower your credit score, but consistently making future payments on time will raise your score.

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

At Executive Lending Group, LLC, we answer questions about Credit reports every day. Give us a call at (816) 525-8000.

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