Before lenders decide to lend you money, they want to know if you're willing and able to repay that mortgage. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. You can find out more about FICO here.
Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "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 consider only what was relevant to a borrower's likelihood to pay back a loan.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score comes from both the good and the bad in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your credit report should 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 sufficient information in your credit to calculate an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.
Ann Jones (512) 422-9036 can answer your questions about credit reporting. Call us: (512) 422-9036.
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