Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to find out two things about you: your ability to repay the loan, and your willingness to repay the loan. To understand whether you can repay, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most widely 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.

Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other demographic factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is based on the good and the bad in your credit report. Late payments will lower your credit score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is enough information in your report to build a score. Should you not meet the minimum criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.

Southwest Funding #841
Company NMLS # 303440 can answer your questions about credit reporting. Give us a call: 5122916100.