About Your Credit Score
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Before they decide on the terms of your loan (which they base on their risk), lenders want to find out two things about you: whether you can repay 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 assess how willing you are to repay, they use your credit score.
Fair Isaac and Company built the original FICO score to help lenders assess creditworthiness. We've written a lot more on FICO here.
Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other irrelevant factors.
Deliquencies, 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 results from both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.
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 payment history ensures that there is sufficient information in your credit to generate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.
Eastern Michigan Bank can answer your questions about credit reporting. Give us a call at 810.679.2500.