Your Credit Score: What it means

Before deciding on what terms they will offer you a loan, lenders want to find out two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay the mortgage loan, they consult your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider solely that which was relevant to a borrower's willingness to pay back the lender.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score is calculated from both the good and the bad in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is enough information in your report to calculate a score. Should you not meet the minimum criteria for getting a score, you may need to establish a credit history before you apply for a mortgage.

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

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