Credit Scores

Before they decide on the terms of your loan, lenders need to find out two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess your ability to repay, lenders assess your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. We've written more about FICO here.

Credit scores only assess the info contained in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih positive and negative items in your credit report. Late payments will lower your credit score, but consistently making future payments on time will raise your score.

Your credit 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 payment history ensures that there is enough information in your credit to build a score. Should you not meet the minimum criteria for getting a credit score, you may need to work on your credit history prior to applying for a mortgage.

Greystone Loans, Inc. can answer your questions about credit reporting. Give us a call at 9094671090.