About Your Credit Score

Before they decide on the terms of your mortgage loan, lenders must know two things about you: your ability to pay back the loan, and your willingness to repay the loan. To assess your ability to repay, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company formulated the original FICO score to assess creditworthines. You can learn more about FICO 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. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other irrelevant factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score considers both positive and negative information in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

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 payment history ensures that there is enough information in your report to build an accurate score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

At Ashok Lakshmanan, we answer questions about Credit reports every day. Give us a call at 630-717-3600.


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