A Score that Really Matters: Your Credit Score

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

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They do not consider income, savings, down payment amount, or factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to consider only that which was relevant to a borrower's likelihood to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score considers positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

To get a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is enough information in your credit to generate a score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building a credit history before they apply.

At Prime Capital Mortgage Corp, we answer questions about Credit reports every day. Give us a call at 248-644-1200.

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