A Score that Really Matters: The Credit Score
Before lenders make the decision to lend you money, they have to know that you are willing and able to repay that loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. In order to calculate your willingness to repay the loan, they look at your credit score.
Fair Isaac and Company built the first FICO score to assess creditworthines. For details on FICO, read more 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 like these. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other demographic factors.
Deliquencies, 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 from both the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will raise it.
To get a credit score, you 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 calculate a score. If you don't meet the criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage loan.
At Real Property Finance, we answer questions about Credit reports every day. Give us a call at 310-379-5997.
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