Credit Scores

Before deciding on what terms they will offer you a loan, lenders need to find out two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess whether you can repay, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company calculated the original FICO score to assess creditworthines. You can find out more on FICO here.

Credit scores only assess the information in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only that which was relevant to a borrower's willingness to pay back a loan.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score is calculated from the good and the bad in your credit history. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your report should 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 payment history ensures that there is sufficient information in your credit to build an accurate score. If you don't meet the criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage loan.

Ashok Lakshmanan can answer your questions about credit reporting. Call us at 6307173600.