Credit Scoring

Before they decide on the terms of your loan (which they base on their risk), lenders want to find out two things about you: whether you can pay back the loan, and your willingness to repay the loan. To assess your ability to repay, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company developed the first FICO score to assess creditworthines. We've written more on FICO here.

Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was invented as a way to consider solely that which was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and 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 score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your report should have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is enough information in your credit to assign a score. Should you not meet the minimum criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage loan.

At America's Money Source, we answer questions about Credit reports every day. Give us a call at 4078987559.