Your Credit Score: What it means

Before they decide on the terms of your loan, lenders need to find out two things about you: whether you can repay the loan, and if you will pay it back. To assess your ability to repay, they assess your debt-to-income ratio. In order to assess your willingness to repay the loan, they consult 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 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is in the present day. Credit scoring was developed as a way to consider solely that which was relevant to a borrower's willingness 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 comes from the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will improve it.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to calculate a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building credit history before they apply for a loan.

At Price Mortgage Group LLC, we answer questions about Credit reports every day. Call us: 405-513-7700.

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