Before they decide on the terms of your loan, lenders must discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. We've written more about FICO here.
Your credit score is a result of your repayment history. They never consider income, savings, amount of down payment, or personal factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering other demographic factors.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score comes from both the good and the bad of your credit history. 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 calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.
Assured Mortgage can answer questions about credit reports and many others. Call us at (414) 350-5834.