Your Credit Score: What it means

Before deciding on what terms they will offer you a 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 figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. In order to assess your willingness to pay back the mortgage loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only consider the info contained in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih both positive and negative items in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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 history ensures that there is enough information in your report to calculate a score. Some borrowers don't have a long enough credit history to get a credit score. They should spend some time building up credit history before they apply.

PREMIERE MORTGAGE SERVICES INC. can answer questions about credit reports and many others. Call us at 978-422-2311.

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