Before they decide on the terms of your loan (which they base on their risk), lenders want to discover two things about you: whether you can pay back the loan, and your willingness to repay the loan. To assess your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. For details on FICO, read more here.
Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to repay the loan without considering other irrelevant factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is based on both the good and the bad of your credit report. Late payments count against you, but a record of paying on time will improve it.
To get a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your credit to calculate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building up credit history before they apply for a loan.
At Prime Capital Mortgage Corp, we answer questions about Credit reports every day. Call us at 248-644-1200.
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