Your Credit Score: What it means
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Before they decide on the terms of your mortgage loan, lenders must know two things about you: your ability to pay back the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company developed the original FICO score to help lenders assess creditworthiness. For details on FICO, read more here.
Your credit score is a result of your repayment history. They don't take into account income, savings, down payment amount, or factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is in the present day. Credit scoring was developed to assess a borrower's willingness to pay without considering other personal factors.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score considers positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will improve it.
Your 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 history ensures that there is sufficient information in your credit to assign an accurate 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 for a loan.
At Mortgage Solutions of Central Florida, Inc., we answer questions about Credit reports every day. Call us: (407) 294-4707.