Before lenders make the decision to give you a loan, they must know if you're willing and able to repay that loan. To assess whether you can pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to repay the loan, they look at your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score comes from your history of repayment. They don't take into account income, savings, amount of down payment, or demographic factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were first invented as it is now. Credit scoring was invented as a way to consider solely what was relevant to a borrower's likelihood to repay a loan.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
To get a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your report to build a score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply.
Saab Mortgage can answer questions about credit reports and many others. Give us a call at 703-288-0777.
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