Your Credit Score: What it means

Before lenders make the decision to give you a loan, they have to know that you're willing and able to pay back that loan. To understand your ability to repay, they look at your income and debt ratio. To assess your willingness to repay the loan, they look at your credit score.

The most commonly 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.

Your credit score comes from your repayment history. They never consider income, savings, down payment amount, or demographic factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. 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.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score considers both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

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

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

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