Before they decide on the terms of your loan, lenders must know two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess whether you can repay, they look at your income and debt ratio. In order to assess your willingness to pay back the loan, they consult your credit score.
Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. For details on FICO, read more 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 race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account only what was relevant to a borrower's willingness to repay a loan.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih both positive and negative information 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.
To get a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply.
At Saab Mortgage, we answer questions about Credit reports every day. Call us at 703-288-0777.
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