About Your Credit Score
Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to discover two things about you: whether you can pay back the loan, and if you will pay it back. To assess whether you can repay, they assess your income and debt ratio. In order to assess your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company built the first FICO score to assess creditworthines. For details on FICO, read more here.
Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were first invented as it is in the present day. Credit scoring was developed as a way to consider only what was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score results from 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 a payment history of at least six months. This payment history ensures that there is sufficient information in your report to assign a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building up credit history before they apply for a loan.
At F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org), we answer questions about Credit reports every day. Give us a call at 214-300-8756.