Your Credit Score: What it means

Before lenders make the decision to give you a loan, they want to know that you're willing and able to repay that mortgage. To figure out your ability to repay, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are called 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.

Your credit score comes from your history of repayment. They do not take into account your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess willingness to pay without considering other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. 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 improve it.

For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient 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 build up a credit history before they apply for a loan.

Capacity Lending, LLC can answer questions about credit reports and many others. Give us a call at 469-640-0400.

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