Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders want to find out two things about you: your ability to pay back the loan, and if you will pay it back. To assess your ability to repay, they assess your income and debt ratio. To calculate your willingness to repay the loan, they consult your credit score.

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

Your credit score comes from your repayment history. They never take into account income, savings, amount of down payment, or personal factors like sex ethnicity, national origin 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 in the present day. Credit scoring was developed to assess a borrower's willingness to pay without considering other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will raise it.

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 history ensures that there is enough information in your credit to build a score. If you don't meet the minimum criteria for getting a score, you may need to establish your credit history before you apply 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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