A Score that Really Matters: The Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. You can find out more about FICO here.
Credit scores only assess the info contained in your credit profile. They do not take into account your income, savings, amount of down payment, or factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was developed to assess a borrower's willingness to pay without considering other irrelevant factors.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is based on both the good and the bad in your credit history. Late payments count against your score, but a record of paying on time will improve it.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is enough information in your credit to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.
America's Money Source can answer questions about credit reports and many others. Give us a call at (407) 898-7559.
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