Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess whether you can repay, they look at your income and debt ratio. To calculate your willingness to repay the loan, they consult your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. For details on FICO, read more here.
Credit scores only take into account the info contained in your credit reports. 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 other demographic factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score results from both positive and negative information in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.
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 build an accurate 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.
Ann Jones (512) 422-9036 can answer questions about credit reports and many others. Give us a call: (512) 422-9036.
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