Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to find out two things about you: whether you can repay the loan, and if you are willing to pay it back. To understand your ability to repay, they look at your income and debt ratio. In order to calculate your willingness to repay the loan, they look at your credit score.

Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.

Credit scores only assess the information in your credit reports. They don't take into account your income, savings, down payment amount, or personal factors like gender, race, nationality 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 in the present day. Credit scoring was developed to assess willingness to repay the loan without considering any other personal factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score is calculated wtih both positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

Your 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 history ensures that there is sufficient information in your report to assign an accurate score. Should you not meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.

At Reliance Mortgage Service, Inc, we answer questions about Credit reports every day. Call us at 562 320-0510.

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