Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must find out two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

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

Credit scores only take into account the info contained in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was invented as a way to consider solely what was relevant to a borrower's likelihood to pay back the lender.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is based on both the good and the bad in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your report to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage loan.

The Mortgage Exchange Service LLC can answer your questions about credit reporting. Call us at 703.255-5810.

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