Your Credit Score: What it means

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other demographic factors.

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

Your report should 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 history ensures that there is enough information in your report to assign a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building a credit history before they apply for a loan.

Metro Mortgage can answer your questions about credit reporting. Call us: 866-300-1550.

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