A Score that Really Matters: Your Credit Score
Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to discover two things about you: whether you can repay the loan, and if you are willing to pay it back. To assess your ability to repay, they look at your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.
Credit scores only take into account the info in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other personal factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score results from positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will improve it.
To get a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to calculate an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to establish a credit history before you apply for a mortgage.
Executive Lending Group, LLC can answer your questions about credit reporting. Give us a call: (816) 525-8000.
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