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Before deciding on what terms they will offer you a loan (which they base on their risk), lenders want to find out two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To understand whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company built the first FICO score to assess creditworthiness. We've written a lot more on FICO here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative items in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.
At Security Mortgage Co, we answer questions about Credit reports every day. Give us a call: 972.359.7766.