Your Credit Score: What it means

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company built the first FICO score to assess creditworthines. For details on FICO, read more here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score comes from the good and the bad in your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your report should have 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 history ensures that there is sufficient information in your credit to calculate an accurate score. If you don't meet the criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage.

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

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