Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders must find out two things about you: your ability to pay back the loan, and if you will pay it back. To understand your ability to pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they consult your credit score.

The most widely 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 is a result of your repayment history. They never consider income, savings, amount of down payment, or personal factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is in the present day. Credit scoring was developed to assess willingness to pay while specifically excluding any other demographic factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score is calculated from both the good and the bad of your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.

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

At Halpern & Associates Mortgage Corporation, we answer questions about Credit reports every day. Give us a call at (305) 535-2230.

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