Before they decide on the terms of your loan (which they base on their risk), lenders need to discover two things about you: whether you can pay back the loan, and your willingness to pay back the loan. To assess your ability to repay, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. You can find out more about FICO here.
Credit scores only consider the information in your credit reports. They do not consider income, savings, down payment amount, or personal factors like sex ethnicity, national origin or marital status. 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 consider only that which was relevant to a borrower's willingness to repay the lender.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score comes from both the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.
Your credit report must 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 report to assign an accurate score. If you don't meet the criteria for getting a score, you might need to work on a credit history before you apply for a mortgage.
At Financial Edge Mortgage Corp., we answer questions about Credit reports every day. Call us at 425-508-9988.
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