 What is a credit score?
Before deciding on what terms they will offer you a loan
(which they base on their "risk"), lenders want
to know two things about you: your ability to pay back the
loan, and your willingness to pay back the loan. For the first,
they look at your income-to-debt obligation ratio. For your
willingness to pay back the loan, they consult your credit
score.
The most widely used credit scores are FICO scores, which
were developed by Fair Isaac & Company, Inc. (and they're
named after their inventor!). Your FICO score is between 350
(high risk) and 850 (low risk).
Credit scores only consider the information contained in
your credit profile. They do not consider your income, savings,
down payment amount, or demographic factors like gender, race,
nationality or marital status. In fact, the fact they don't
consider demographic factors is why they were invented in
the first place. "Profiling" was as dirty a word
when FICO scores were invented as it is now. Credit scoring
was developed as a way to consider only what was relevant
to somebody's willingness to repay a loan.
Past delinquencies, derogatory payment behavior, current
debt level, length of credit history, types of credit and
number of inquiries are all considered in credit scores. Your
score considers both positive and negative information in
your credit report. Late payments will lower your score, but
establishing or reestablishing a good track record of making
payments on time will raise your score.
Different portions of your credit history are given different
weights. Thirty-five percent of your FICO score is based on
your specific payment history. Thirty percent is your current
level of indebtedness. Fifteen percent each is the time your
open credit has been in use (ten year old accounts are good,
six month old ones aren't as good) and types of credit available
to you (installment loans such as student loans, car loans,
etc. versus revolving and debit accounts like credit cards).
Finally, five percent is pursuit of new credit -- credit scores
requested.
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 ensures that there is enough information
in your report to generate an accurate score. If you do not
meet the minimum criteria for getting a score, you may need
to establish a credit history prior to applying for a mortgage.
F.A.Q
We offer a wide range of services including real estate sales,
financing, and property management. Call us today for a free
consultation @ 916-482-6899 or email us at fay@amerpropmgmt.com.
|
