A Score that Really Matters: Your Credit Score
Before they decide on the terms of your mortgage loan, lenders must know two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess whether you can repay, they assess your income and debt ratio. In order to calculate your willingness to repay the mortgage loan, they consult your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. We've written more on FICO here.
Your credit score is a direct result of your history of repayment. They do not take into account 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. "Profiling" was as bad a word when these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other demographic factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score is based on the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will improve it.
Your report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is sufficient information in your credit to build a score. If you don't meet the criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage.
At Great Mortgage NMLS#478647, we answer questions about Credit reports every day. Give us a call: 708.966.9005.