Your Credit Score: What it means
Before lenders make the decision to lend you money, they must know if you're willing and able to repay that loan. To figure out your ability to repay, they look at your debt-to-income 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). We've written a lot more on FICO here.
Your credit score is a result of your repayment history. 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 invented as it is today. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's willingness to repay the lender.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative items in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.
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 enough information in your credit to build an accurate score. If you don't meet the criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage loan.
At Coastal Mortgage Corp., we answer questions about Credit reports every day. Call us at 504-866-5626.
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