About Your Credit Score
Before they decide on the terms of your loan (which they base on their risk), lenders must find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they look at your credit score.
The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only consider the info contained in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other irrelevant factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad in your credit report. Late payments count against you, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient 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 some time building up credit history before they apply.
At Carter Financial Solutions, we answer questions about Credit reports every day. Give us a call: 866-840-8745 x2.
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