Credit Scores

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Before lenders decide to give you a loan, they have to know if you're willing and able to repay that loan. To figure out your ability to repay, lenders look at 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 creditworthiness. We've written a lot more on FICO here.

Credit scores only assess the information in your credit reports. They do not consider income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's willingness to pay back a loan.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score considers both positive and negative items in your credit report. Late payments count against you, but a record of paying on time will improve it.

Your report must 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 report to assign a 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 for a loan.

Basic Pre-Approval

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