Your Credit Score: What it means

Before they decide on the terms of your mortgage loan, lenders must know two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness 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). We've written a lot more about FICO here.

Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. 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.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. 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 raise 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 payment history ensures that there is sufficient information in your credit to calculate an accurate score. If you don't meet the minimum criteria for getting a score, you might need to establish your credit history before you apply for a mortgage loan.

At Saab Mortgage, we answer questions about Credit reports every day. Call us at 703-288-0777.

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