Credit Scores
Before lenders make the decision to give you a loan, they have to know that you're willing and able to repay that mortgage. To assess your ability to repay, lenders look at your debt-to-income ratio. To calculate your willingness to pay back the loan, they look at your credit score.
The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.
Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other irrelevant factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score is calculated wtih positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your credit to build a 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.
Tenby J. Dahman The Dahman Team can answer your questions about credit reporting. Call us: 3038627760.