Your Credit Score: What it means

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Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must know two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To assess your ability to repay, they assess your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they consult your credit score.

Fair Isaac and Company calculated the original FICO score to assess creditworthiness. You can learn more on FICO here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to repay the lender.

Your current debt level, 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 lower your score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your credit to assign an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to establish your credit history before you apply for a mortgage.

Diane Giannelli can answer your questions about credit reporting. Give us a call at (760) 415-7982.

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