Your Credit Score: What it means

Before they decide on the terms of your mortgage loan, lenders must know two things about you: your ability to repay the loan, and your willingness to pay back the loan. To assess your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use 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 (high risk) to 850 (low risk). You can find out more about FICO here.

Credit scores only assess the info in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding any other demographic factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from the good and the bad of your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

Your credit report should have 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 history ensures that there is sufficient information in your report to build an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building a credit history before they apply for a loan.

Carter Financial Solutions can answer your questions about credit reporting. Give us a call: 866-840-8745 x2.

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