About Your Credit Score
Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: your ability to repay the loan, and if you are willing to pay it back. To understand whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.
The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score comes from your repayment history. 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 first invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other irrelevant factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score considers positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
To get a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your report to assign 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.
Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234 can answer questions about credit reports and many others. Call us at 2146635355.