Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders need to discover two things about you: whether you can pay back the loan, and your willingness to pay back the loan. To assess your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to pay back 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). You can learn more about FICO here.

Your credit score is a result of your history of repayment. They don't take into account your income, savings, amount of down payment, or factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was developed to assess willingness to pay without considering other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih both positive and negative items in your credit report. Late payments will lower your credit score, but consistently making future 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 payment history ensures that there is sufficient information in your credit to assign a score. If you don't meet the minimum criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage.

First Community Bank of Central Al. can answer your questions about credit reporting. Give us a call at (334) 285-8850.

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