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 discover 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 repay, they assess your debt-to-income ratio. In order to assess your willingness to pay back the loan, they consult your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. We've written a lot more about FICO here.
Credit scores only assess the info in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering other demographic factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score results from both positive and negative information in your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your report to generate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage loan.
At AccessOne Mortgage, we answer questions about Credit reports every day. Give us a call: 919-787-6080.