Before they decide on the terms of your loan, lenders need to discover two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only take into account 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 to assess a borrower's willingness to pay without considering other demographic factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score comes from the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will raise it.
To get a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your report to assign an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building a credit history before they apply.
Washingtonian Mortgage, LLC can answer questions about credit reports and many others. Give us a call: 410-451-2755.