Your Credit Score: What it means

Before lenders make the decision to lend you money, they have to know that you are willing and able to repay that loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to repay the loan, they look at your credit score.

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

Your credit score comes from your repayment history. They don't take into account your income, savings, amount of down payment, or demographic factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO 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 other demographic factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is based on both the good and the bad of your credit history. Late payments will lower your score, but consistently making future payments on time will raise your score.

Your credit 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 history ensures that there is enough information in your report to assign an accurate score. Should you not meet the criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage.

Channel Mortgage LLC can answer your questions about credit reporting. Give us a call at (718) 639-9500.

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