A Score that Really Matters: The Credit Score

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Before lenders decide to give you a loan, they have to know if you are willing and able to repay that mortgage. To assess whether you can repay, they assess your income and debt ratio. In order to assess your willingness to repay the mortgage loan, they consult your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about FICO here.

Credit scores only take into account the information in your credit profile. They do not consider your income, savings, amount of down payment, or personal factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding other demographic factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers both positive and negative items in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

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

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