Before deciding on what terms they will offer you a loan, lenders must know two things about you: your ability to repay the loan, and if you are willing to pay it back. To understand whether you can repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Credit scores only assess the info in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider solely that which was relevant to a borrower's likelihood to pay back the lender.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score is calculated from both the good and the bad in your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your report to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply.
At Milestone Mortgage, Inc. NMLS#136714, we answer questions about Credit reports every day. Give us a call at 3175959600.