Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders want to know two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To understand whether you can pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from 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 consider solely that which was relevant to a borrower's likelihood to repay the lender.

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

Your 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 credit to calculate a score. Should you not meet the criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage.

American Commerce Mortgage can answer questions about credit reports and many others. Give us a call at 714-970-9700.

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