Your Credit Score: What it means

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders want to discover two things about you: your ability to pay back the loan, and if you are willing to pay it back. To figure out your ability to repay, lenders assess your debt-to-income ratio. In order to assess your willingness to pay back the mortgage loan, they look at 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). You can find out more on FICO here.

Your credit score is a direct result of your repayment history. They don't consider income, savings, down payment amount, or personal factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's willingness to repay a loan.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad in your credit report. Late payments count against you, but a record of paying on time will raise it.

Your report must 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 report to calculate an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage loan.

Prime Capital Mortgage Corp can answer your questions about credit reporting. Give us a call at 248-644-1200.

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