A Score that Really Matters: The Credit Score
Before lenders make the decision to give you a loan, they must know that you are willing and able to pay back that loan. To figure out your ability to repay, they look at your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they consult your credit score.
Fair Isaac and Company built the original FICO score to help lenders assess creditworthines. We've written a lot more on FICO here.
Credit scores only assess the information contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was developed as a way to consider solely what was relevant to a borrower's willingness to pay back the lender.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score comes from both the good and the bad in your credit report. Late payments will lower your credit score, but consistently making future payments on time will raise your score.
To get a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your report to assign 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 for a loan.
At Price Mortgage Group LLC, we answer questions about Credit reports every day. Give us a call at 405-513-7700.