Before they decide on the terms of your loan, lenders need to find out two things about you: whether you can pay back the loan, and your willingness to repay the loan. 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.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.
Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess a borrower's willingness to pay without considering any 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 scoring. Your score is based on the good and the bad of your credit report. Late payments count against your score, 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 credit to generate an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply.
At United Capital Mortgage, Inc., we answer questions about Credit reports every day. Give us a call: 2147187183.