Before they decide on the terms of your 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 understand your ability to repay, they look at your income and debt ratio. To assess your willingness to pay back the loan, they look at your credit score.
Fair Isaac and Company formulated the first FICO score to assess creditworthines. For details on FICO, read more 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 developed as a way to take into account only that which was relevant to a borrower's willingness to repay a loan.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score is based on the good and the bad in your credit report. Late payments count against your score, but a record of paying on time will improve it.
To get a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your report to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.
At 1st Credential Mortgage Inc, we answer questions about Credit reports every day. Give us a call at (281) 778-0805.