Before they decide on the terms of your loan, lenders must discover two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To calculate your willingness to pay back the loan, they look at your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more about FICO here.
Your credit score is a result of your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is today. Credit scoring was envisioned as a way to consider only what was relevant to a borrower's likelihood to repay the lender.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score reflects both the good and the bad in your credit history. Late payments count against you, but a consistent 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 payment history ensures that there is sufficient information in your credit to calculate an accurate score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.
Omni Mortgage Corp. can answer questions about credit reports and many others. Give us a call: 718-441-7000.