A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a loan, lenders must find out two things about you: whether you can repay the loan, and if you will pay it back. To understand whether you can repay, they look at your income and debt ratio. To calculate your willingness to repay the loan, they consult 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 (high risk) to 850 (low risk). You can learn more on FICO here.

Credit scores only consider the information in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess a borrower's willingness to repay the loan 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 considered in credit scoring. Your score is based on the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.

Your report should 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 payment history ensures that there is sufficient information in your credit to calculate a score. Should you not meet the minimum criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage.

America's Money Source can answer questions about credit reports and many others. Call us: (407) 898-7559.

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