Your Credit Score: What it means
Before lenders decide to lend you money, they need to know if you're willing and able to repay that mortgage. To assess your ability to repay, lenders look at your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company formulated the original FICO score to assess creditworthines. We've written a lot more on FICO here.
Credit scores only assess the info in your credit reports. They do not take into account income, savings, amount of down payment, or personal factors like sex 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 invented as it is now. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to repay the lender.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score comes from the good and the bad in your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
Your credit report should 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 a score. If you don't meet the criteria for getting a credit score, you may need to establish your credit history before you apply for a mortgage.
Metro Mortgage can answer your questions about credit reporting. Give us a call: 866-300-1550.