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What is Your Credit
Score? |
One of the key factors in
determining your ability to
qualify for a mortgage
loan is your credit score.
Before deciding on which
programs and rates you will
qualify, lenders want to
know two things about you:
your ability
to pay back the loan, and
your willingness
to pay back the loan. For
the first, they look at
your debt-to-income ratio.
For your willingness to pay
back the loan, they consult
your credit score.
The most widely used credit
scores are FICO scores,
which were developed by Fair
Isaac & Company, Inc. Your
FICO score is between 350
(high risk) and 850 (low
risk). Your interest rate
typically coincides with
amount of risk the lender
will incur. The higher the
credit risk, the higher your
interest rate will be.
Credit scores only consider
the information contained in
your credit profile. They do
not consider your income,
savings, down payment
amount, or demographic
factors like gender,
race, nationality or marital
status. In fact, the fact
they don't consider
demographic factors is why
they were invented in the
first place. "Profiling" was
as dirty a word when FICO
scores were invented as it
is now. Credit scoring was
developed as a way to
consider only what was
relevant to somebody's
willingness to repay a loan.
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Click here
for your
FICO score |
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Past delinquencies,
derogatory payment behavior,
current debt level, length
of credit history, types of
credit and number of
inquiries are all considered
in credit scores.
Your score considers both
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 raise your score.
Different portions of your
credit history are given
different weights.
Thirty-five percent of your
FICO score is based on your
specific payment history.
Thirty percent is your
current level of
indebtedness. Fifteen
percent each is the time
your open credit has been in
use (ten year old accounts
are good, six month old ones
aren't as good) and types of
credit available to you
(installment loans such as
student loans, car loans,
etc. versus revolving and
debit accounts like credit
cards). Finally, five
percent is pursuit of new
credit -- credit scores
requested.
Your credit report must
contain 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 ensures
that there is enough
information in your report
to generate an accurate
score. If you do not meet
the minimum criteria for
getting a score, you may
need to establish a credit
history prior to applying
for a mortgage.
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