Before lenders decide to lend you money, they must know that you're willing and able to repay that mortgage loan. To understand whether you can repay, they look at your income and debt ratio. To assess your willingness to repay the loan, they consult your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering any other irrelevant factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score considers 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 improve your score.
Your report must contain 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 payment history ensures that there is enough information in your credit to build an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to spend a little time building credit history before they apply for a loan.
At Not Your Average Lender, we answer questions about Credit reports every day. Give us a call: 9722039033.