Your Credit Score: What it means

Before they decide on the terms of your mortgage loan, lenders must discover two things about you: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they look at your debt-to-income ratio. In order to assess your willingness to pay back the loan, they look at your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.

Your credit score is a result of your repayment history. They do not take into account income, savings, amount of down payment, or personal factors like sex race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

To get a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your report to calculate a score. If you don't meet the minimum criteria for getting a score, you might need to work on your credit history before you apply for a mortgage.

Pacificwide Lending can answer questions about credit reports and many others. Call us: 9254610500.