Your Credit Score: What it means

Before they decide on the terms of your mortgage loan, lenders want to know two things about you: whether you can repay the loan, and your willingness to pay back the loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your 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 history of repayment. They don't take into account income, savings, down payment amount, or demographic factors like sex race, nationality 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 today. Credit scoring was developed to assess willingness to pay without considering any other personal factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative items in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

Halpern & Associates Mortgage Corporation can answer your questions about credit reporting. Call us at (305) 535-2230.

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