Credit Scoring

Before lenders decide to lend you money, they have to know that you're willing and able to pay back that loan. To understand your ability to pay back the loan, they assess your income and debt ratio. To assess your willingness to repay the mortgage loan, they look at your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (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. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other personal factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

To get a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is enough information in your report to build a score. If you don't meet the minimum criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage loan.

Ashok Lakshmanan can answer questions about credit reports and many others. Give us a call: 630-717-3600.


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