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: whether you can repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they consult 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 (high risk) to 850 (low risk). You can learn more on FICO here.

Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed 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 other factors are considered. Your score comes from the good and the bad in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to calculate an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage loan.

Prime Capital Mortgage Corp can answer questions about credit reports and many others. Call us: 248-644-1200.

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