Before lenders make the decision to give you a loan, they must know that you're willing and able to pay back that mortgage. To understand your ability to pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to repay the mortgage loan, they consult your credit score.
Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Credit scores only take into account the information contained in your credit reports. They do not take into account income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay without considering other personal factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score results from both positive and negative information in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your report to assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply.
Bob Rutledge Mortgage can answer questions about credit reports and many others. Give us a call: 3149139678.