About Your Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must find out two things about you: whether you can pay back the loan, and if you will pay it back. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate 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 ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.

Your credit score comes from your history of repayment. They do not take into account income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding other demographic factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects the good and the bad of your credit history. Late payments will lower your score, but consistently making future 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 sufficient information in your credit to calculate a score. Some people don't have a long enough credit history to get a credit score. They may need to spend some time building a credit history before they apply.

At Ashok Lakshmanan, we answer questions about Credit reports every day. Call us: 630-717-3600.


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