A Score that Really Matters: The Credit Score
Before they decide on the terms of your loan (which they base on their risk), lenders want to find out 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 pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.
Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other personal factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score reflects the good and the bad in your credit report. Late payments count against you, but a record of paying on time will improve it.
To get a credit score, you 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 build an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.
PREMIERE MORTGAGE SERVICES, INC. can answer questions about credit reports and many others. Call us at 978-422-2311.