A Score that Really Matters: Your Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to find out two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To assess your ability to repay, lenders look at your debt-to-income ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. We've written more on FICO here.
Your credit score is a direct result of your history of repayment. They don't consider your income, savings, down payment amount, or demographic factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other demographic factors.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers 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 improve your score.
Your credit 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 payment history ensures that there is enough information in your report to build an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.
At Financial Edge Mortgage Corp., we answer questions about Credit reports every day. Call us: 425-508-9988.
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