A Score that Really Matters: Your Credit Score
Before deciding on what terms they will offer you a loan, lenders need to find out two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To understand your ability to repay, 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 Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more on FICO here.
Your credit score comes from your history of repayment. They never take into account income, savings, amount of down payment, or personal factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other personal factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Your credit report must contain 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 sufficient information in your credit to generate a score. Some people don't have a long enough credit history to get a credit score. They should spend a little time building up a credit history before they apply for a loan.
At Saab Mortgage, we answer questions about Credit reports every day. Give us a call at 703-288-0777.
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