Credit Scores

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must find out two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To understand whether you can repay, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most widely 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). We've written a lot more on FICO here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to repay the loan without considering other personal factors.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score results from positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.

The Mortgage Exchange Service LLC can answer questions about credit reports and many others. Give us a call: 7032555810.

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