Your Credit Score: What it means

Before they decide on the terms of your loan, lenders want to know two things about you: whether you can repay the loan, and how committed you are to repay the loan. To understand your ability to repay, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.

The most widely used credit scores are called 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 a lot more on FICO here.

Credit scores only take into account the info contained in your credit profile. They do not consider income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was developed to assess willingness to repay the loan while specifically excluding any other personal factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score results from both positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will improve it.

Your credit report must have 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 payment history ensures that there is enough information in your report to calculate an accurate score. If you don't meet the criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage loan.

At Omni Mortgage Corp., we answer questions about Credit reports every day. Give us a call at 718-441-7000.

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