Credit Scoring

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can repay the loan, and how committed you are to repay the loan. To assess whether you can repay, they assess your income and debt ratio. To assess how willing you are 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 (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 consider your income, savings, amount of down payment, or factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is in the present day. Credit scoring was developed to assess willingness to repay the loan without considering other irrelevant factors.

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

Your report must contain 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 history ensures that there is enough information in your credit to assign an accurate score. Some people don't have a long enough credit history to get a credit score. They should spend a little time building credit history before they apply.

America's Money Source can answer your questions about credit reporting. Call us: (407) 898-7559.

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