About Your Credit Score
Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness 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 direct result of your repayment history. They don't take into account your income, savings, amount of down payment, or factors like sex race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other demographic factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score considers both positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.
Peerless Residential Mortgage can answer questions about credit reports and many others. Call us at (513) 713-1515.