A Score that Really Matters: The Credit Score
Before lenders make the decision to give you a loan, they must know that you're willing and able to repay that loan. To understand your ability to repay, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.
The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.
Credit scores only assess the information contained in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's willingness to repay a loan.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
To get a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your credit to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to establish your credit history before you apply for a mortgage loan.
At America's Money Source, we answer questions about Credit reports every day. Call us: 4078987559.