Before they decide on the terms of your loan, lenders must know two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To figure out your ability to repay, they assess 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. You can learn more about FICO here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was developed as a way to consider solely that which was relevant to a borrower's willingness to pay back a loan.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is calculated from both the good and the bad in 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 history ensures that there is enough information in your report to generate a score. If you don't meet the criteria for getting a score, you may need to establish your credit history before you apply for a mortgage loan.
Coastal Mortgage Corp. can answer your questions about credit reporting. Call us at 504-866-5626.
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