Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders need to know two things about you: your ability to repay the loan, and your willingness to repay the loan. To assess your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to repay the loan, they consult your credit score.

The most widely used credit scores are 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 is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's willingness to repay the lender.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score is based on both the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will improve it.

Your report must 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 payment history ensures that there is enough information in your credit to generate a score. Some borrowers 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.

1st Credential Mortgage Inc can answer questions about credit reports and many others. Give us a call at (281) 778-0805.

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