Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), 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, lenders assess your debt-to-income ratio. To assess your willingness to repay the mortgage loan, they look at your credit score.

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

Your credit score comes from your repayment history. They don't take into account your income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to pay while specifically excluding other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score results from positive and negative information in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.

To get a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your credit to calculate an accurate score. Some borrowers 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.

At Longhorn Mortgage, we answer questions about Credit reports every day. Call us: 512-302-9410.

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