A Score that Really Matters: Your Credit Score

Before lenders decide to lend you money, they must know that you're willing and able to repay that loan. To understand your ability to repay, they assess your income and debt ratio. In order to assess your willingness to pay back the mortgage loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.

Credit scores only consider the information contained in your credit reports. They don't take into account income, savings, amount of down payment, or personal factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other demographic factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your report to build an accurate 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.

At America's Money Source, we answer questions about Credit reports every day. Give us a call at (407) 898-7559.

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