A Score that Really Matters: The Credit Score
Before lenders decide to give you a loan, they have to know that you're willing and able to pay back that mortgage loan. To figure out your ability to repay, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. We've written more about FICO here.
Your credit score is a result of your history of repayment. They do not consider income, savings, down payment amount, or demographic factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other demographic factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is based on both the good and the bad of your credit report. Late payments count against your score, but a record of paying on time will raise it.
To get a credit score, borrowers 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 generate an accurate 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 for a loan.
America's Money Source can answer questions about credit reports and many others. Give us a call: (407) 898-7559.
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