Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: your ability to repay the loan, and how committed you are to repay the loan. To assess your ability to repay, lenders assess your debt-to-income ratio. In order to assess your willingness to pay back the mortgage loan, they consult your credit score.
Fair Isaac and Company built the original FICO score to help lenders assess creditworthines. You can learn more about FICO here.
Credit scores only take into account the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's willingness to pay back the lender.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from the good and the bad of your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
Your report should contain 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 payment history ensures that there is sufficient information in your report to build an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to spend a little time building a credit history before they apply.
PREMIERE MORTGAGE SERVICES INC. can answer your questions about credit reporting. Call us at 978-422-2311.
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