A Score that Really Matters: Your Credit Score

Before they decide on the terms of your mortgage loan, lenders want to know two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess whether you can repay, they look at your income and debt ratio. To assess your willingness to repay the loan, they look at your credit score.

Fair Isaac and Company built the original FICO score to help lenders assess creditworthiness. For details on FICO, read more here.

Credit scores only consider the info contained in your credit reports. They never take into account income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to consider solely what was relevant to a borrower's willingness to repay a loan.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.

Your credit 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 enough information in your report to generate an accurate score. Should you not meet the minimum criteria for getting a score, you might need to establish your credit history before you apply for a mortgage.

HERN Capitl LLC can answer questions about credit reports and many others. Give us a call: (626)918-4592.

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