A Score that Really Matters: Your Credit Score

Before they decide on the terms of your mortgage loan, lenders want to discover two things about you: whether you can pay back 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 your willingness to repay, they use your credit score.

The most commonly 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). We've written more on FICO here.

Credit scores only assess the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering other demographic factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score is based on the good and the bad of your credit history. Late payments lower your score, but consistently making future payments on time will raise your score.

Your credit 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 enough information in your report to build a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply for a loan.

Contemporary Mortgage Services, Inc can answer questions about credit reports and many others. Give us a call at 407-834-3377.

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