Your Credit Score: What it means

Before lenders make the decision to lend you money, they need to know that you are willing and able to pay back that mortgage. To understand whether you can repay, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only consider the info in your credit reports. They do not take into account your income, savings, down payment amount, or demographic factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was envisioned as a way to assess willingness to pay without considering other demographic factors.

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

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.

At Channel Mortgage LLC, we answer questions about Credit reports every day. Give us a call: 7186399500.

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