About Your Credit Score

Before lenders make the decision to give you a loan, they have to know that you're willing and able to pay back that mortgage. To figure out your ability to repay, they assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score comes from your repayment history. They never take into account income, savings, amount of down payment, or demographic factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was invented as a way to consider only what was relevant to a borrower's likelihood to repay a loan.

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 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, you must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building up credit history before they apply for a loan.

MidTowne Mortgage can answer questions about credit reports and many others. Give us a call: (478) 746-2063.

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