Before they decide on the terms of your loan, lenders must discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To understand your ability to pay back the loan, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.
Your credit score comes from your history of repayment. They don't take into account your income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's willingness to pay back a loan.
Deliquencies, derogatory 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 is calculated wtih positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
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 history ensures that there is sufficient information in your credit to calculate an accurate score. If you don't meet the minimum criteria for getting a score, you might need to work on a credit history prior to applying for a mortgage.
Financial Edge Mortgage Corp. can answer questions about credit reports and many others. Give us a call at 425-508-9988.
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