Before deciding on what terms they will offer you a loan, lenders need to discover two things about you: whether you can repay the loan, and how committed you are to repay the loan. To understand whether you can repay, 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 help lenders assess creditworthines. For details on FICO, read more here.
Credit scores only take into account the info contained in your credit profile. They never take into account your income, savings, amount of down payment, or personal factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other personal factors.
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 reflects both the good and the bad in your credit report. Late payments count against your score, but a record of paying on time will raise 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 payment history ensures that there is enough information in your report to generate an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage loan.
At Metro Mortgage, we answer questions about Credit reports every day. Call us: 866-300-1550.