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Before lenders decide to lend you money, they have to know if you're willing and able to repay that loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness 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 (very high risk) to 850 (low risk). You can learn 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. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other personal factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score is calculated from the good and the bad of your credit report. Late payments count against your score, but a record of paying on time will improve it.
Your report must 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 history ensures that there is sufficient information in your report to assign a score. If you don't meet the criteria for getting a score, you might need to work on a credit history prior to applying for a mortgage loan.
The Mortgage Superstore can answer your questions about credit reporting. Call us: 575-769-9006.