A Score that Really Matters: Your Credit Score
Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must find out two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess your ability to repay, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. You can learn more about FICO here.
Credit scores only take into account the information in your credit reports. They do not consider your income, savings, down payment amount, or factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were invented as it is today. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's willingness to repay the lender.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score comes from the good and the bad of your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making 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 credit to generate a score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.
At Coleman Mortgage Company, we answer questions about Credit reports every day. Give us a call: 972-932-9083.