Before lenders make the decision to lend you money, they have to know if you are willing and able to pay back that mortgage. To understand whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they consult your credit score.
Fair Isaac and Company built the original FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score comes from your history of repayment. They do not take into account income, savings, amount of down payment, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to consider solely what was relevant to a borrower's willingness to repay a loan.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score is calculated wtih positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will raise it.
Your 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 history ensures that there is sufficient information in your credit to build an accurate score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building up credit history before they apply for a loan.
At Metro Mortgage, we answer questions about Credit reports every day. Give us a call at 866-300-1550.