Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders want to discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To understand whether you can repay, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they look at your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more on FICO here.

Credit scores only take into account the information contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when FICO scores were first invented as it is in the present day. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's willingness to pay back a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score is calculated wtih both positive and negative items in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

To get a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your credit to build an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage.

At Southwest Funding #841
Company NMLS # 303440, we answer questions about Credit reports every day. Call us: 5122916100.

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Southwest Funding #841
Company NMLS # 303440

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7901 Cameron Road Bldg 2 Ste 246
Austin, TX 78754