Before lenders make the decision to give you a loan, they must know if you're willing and able to repay that loan. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about FICO here.
Credit scores only consider the information 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 consider solely that which was relevant to a borrower's willingness to pay back the lender.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score results from both positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will raise it.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building credit history before they apply for a loan.
Reliance Mortgage Service, Inc can answer your questions about credit reporting. Call us at 562 320-0510.