Your Credit Score: What it means

Before lenders make the decision to give you a loan, they want to know if you are willing and able to repay that mortgage loan. To figure out your ability to repay, lenders look at your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they consult your credit score.

Fair Isaac and Company developed the first FICO score to assess creditworthines. We've written a lot more on FICO here.

Your credit score is a result of your repayment history. They don't consider 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 bad a word when FICO scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to pay without considering other demographic factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score considers both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.

Your credit report should 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 credit to calculate an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to establish a credit history before you apply for a mortgage.

At Real Property Finance, we answer questions about Credit reports every day. Give us a call at 310-379-5997.

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