Before deciding on what terms they will offer you a mortgage loan, lenders want to find out two things about you: whether you can pay back the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. In order to assess your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company formulated the original FICO score to assess creditworthines. You can learn more on FICO here.
Your credit score comes from your repayment history. They do not take into account income, savings, down payment amount, or demographic factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other irrelevant factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score considers both positive and negative information 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.
For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your report to assign a 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.
MidTowne Mortgage can answer questions about credit reports and many others. Give us a call at (478) 746-2063.