Credit Scoring

Before they decide on the terms of your loan, lenders must know two things about you: your ability to repay the loan, and if you will pay it back. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company developed the original FICO score to assess creditworthines. You can learn more on FICO here.

Credit scores only consider the info contained in your credit reports. They don't consider your income, savings, down payment amount, or personal factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding other personal factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score is calculated wtih both positive and negative items in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

Your report should have 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 credit to build an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply for a loan.

AmeriBest Mortgage can answer questions about credit reports and many others. Give us a call at 3217777277.