Before deciding on what terms they will offer you a mortgage 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 assess whether you can pay back the loan, 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 first FICO score to assess creditworthines. You can learn more about FICO here.
Credit scores only assess the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is today. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding other personal factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score reflects the good and the bad in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your report to calculate a score. Some people don't have a long enough credit history to get a credit score. They should spend some time building up credit history before they apply.
At Team USA Mortgage, we answer questions about Credit reports every day. Call us at 218-237-5128.