A Score that Really Matters: The Credit Score

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to know two things about you: your ability to repay the loan, and how committed you are to repay the loan. To understand your ability to repay, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company formulated the original FICO score to assess creditworthines. You can find out more about FICO here.

Your credit score comes from your repayment history. They do not consider your income, savings, down payment amount, or factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider solely that which was relevant to a borrower's willingness to pay back the lender.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score results from both positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

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 history ensures that there is sufficient information in your report to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply.

Ashok Lakshmanan can answer questions about credit reports and many others. Call us at 630-717-3600.