Before deciding on what terms they will offer you a loan, lenders want to know two things about you: your ability to 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 your willingness to repay the loan, they consult your credit score.
Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. We've written more on FICO here.
Credit scores only assess the information in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account only what was relevant to a borrower's likelihood to repay a loan.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih positive and negative information in your credit report. Late payments count against you, but a record of paying on time will improve it.
Your credit report must have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is sufficient information in your credit to calculate a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building credit history before they apply for a loan.
Coastal Mortgage Corp. can answer questions about credit reports and many others. Call us: 504-866-5626.
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