About Your Credit Score
Before they decide on the terms of your loan, lenders need to discover two things about you: whether you can pay back the loan, and if you will pay it back. To figure out your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to repay the mortgage loan, they consult your credit score.
Fair Isaac and Company formulated the original FICO score to assess creditworthines. We've written a lot more about FICO here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is now. Credit scoring was invented as a way to take into account solely what 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 the number of credit inquiries are all calculated into credit scoring. Your score is based on both the good and the bad in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your report should 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 payment history ensures that there is enough information in your credit to assign an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage.
Financial Edge Mortgage Corp. can answer questions about credit reports and many others. Call us at 425-508-9988.
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