Your Credit Score: What it means
Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), 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 assess your ability to pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company formulated the original FICO score to assess creditworthines. You can find out more on FICO here.
Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other personal factors.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is calculated wtih both positive and negative items in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to generate 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.
F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can answer questions about credit reports and many others. Give us a call: 214-300-8756.