Before lenders make the decision to give you a loan, they need to know if you're willing and able to pay back that loan. To understand whether you can repay, they assess your income and debt ratio. To calculate your willingness to pay back the loan, they look at your credit score.
Fair Isaac and Company built the first FICO score to help lenders assess creditworthines. You can learn more on FICO here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's likelihood to repay the lender.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score comes from the good and the bad of your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your report to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They should spend a little time building credit history before they apply for a loan.
At Saab Mortgage, we answer questions about Credit reports every day. Call us at 703-288-0777.
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