Before they decide on the terms of your loan, lenders must know two things about you: whether you can repay the loan, and if you will pay it back. To figure out your ability to repay, they assess your debt-to-income ratio. To calculate your willingness to repay the loan, they look at your credit score.
Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. You can find out more about FICO here.
Credit scores only assess the information in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to pay without considering other demographic factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your credit report must have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is enough 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 spend a little time building up credit history before they apply.
At Prime Capital Mortgage Corp, we answer questions about Credit reports every day. Give us a call at 248-644-1200.
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