Your Credit Score: What it means

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

Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.

Credit scores only consider the info contained in your credit reports. They never consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was invented as a way to consider only what was relevant to a borrower's willingness to pay back the lender.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from both the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to build a score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building up a credit history before they apply.

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


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