Your Credit Score: What it means

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Before lenders make the decision to lend you money, they want to know if you are willing and able to pay back that mortgage loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they consult 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 (high risk) to 850 (low risk). We've written more on FICO here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's willingness to pay back the lender.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from both the good and the bad in your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is sufficient information in your report to assign an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to work on your credit history before you apply for a mortgage loan.

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