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Before lenders decide to give you a loan, they must know if you're willing and able to repay that mortgage. To figure out your ability to repay, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthiness. You can find out more about FICO here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay without considering other demographic factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score comes from the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will improve it.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is enough information in your report to assign a score. If you don't meet the minimum criteria for getting a score, you may need to establish a credit history before you apply for a mortgage loan.
FKEJ-4 Inc., dba Your Equity Services can answer questions about credit reports and many others. Call us: 425-392-2295.