Your Credit Score: What it means
Before lenders decide to lend you money, they must know if you are willing and able to pay back that loan. To assess whether you can repay, they look at your income and debt ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. You can learn more on FICO here.
Your credit score comes from your history of repayment. They do not consider your income, savings, down payment amount, or factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. “Profiling” was as dirty a word when FICO scores were first invented as it is now. Credit scoring was envisioned as a way to assess a borrower’s willingness to pay while specifically excluding other irrelevant factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score comes from the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers 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 an accurate score. Should you not meet the criteria for getting a score, you may need to work on a credit history prior to applying for a mortgage loan.
The Mortgage Exchange Service LLC can answer questions about credit reports and many others.
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