Your Credit Score: What it means

Before they decide on the terms of your loan, lenders need to discover two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use 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). You can find out more on FICO here.

Credit scores only take into account the information contained in your credit reports. They do not consider your income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to take into account only what 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 considers positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your credit to generate an accurate score. If you don't meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.

Longhorn Mortgage can answer your questions about credit reporting. Give us a call at 512-302-9410.

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