A Score that Really Matters: Your Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders must know two things about you: your ability to repay the loan, and if you will pay it back. To figure out your ability to repay, they assess your debt-to-income ratio. To assess your willingness to pay back 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. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was invented as a way to take into account only what was relevant to a borrower's likelihood to pay back a loan.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score results from positive and negative items in your credit report. Late payments will lower your credit score, but consistently making future payments on time will raise your score.

Your report must contain 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 report to assign a score. Some people don't have a long enough credit history to get a credit score. They should spend a little time building up credit history before they apply.

Bright Vision Mortgage can answer your questions about credit reporting. Give us a call at 9043423622.

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