Your Credit Score: What it means
Before lenders make the decision to give you a loan, they must know if you are willing and able to pay back that mortgage loan. To figure out your ability to repay, they assess your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.
Fair Isaac and Company built the original FICO score to assess creditworthines. We've written a lot more on FICO here.
Your credit score is a direct result of your repayment history. They do not consider income, savings, down payment amount, or factors like gender, 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 first invented as it is in the present day. Credit scoring was developed as a way to consider solely what was relevant to a borrower's willingness to repay a loan.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih both positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your credit 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 sufficient information in your credit to assign a score. If you don't meet the minimum criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage.
Alternative Mortgage Group can answer your questions about credit reporting. Give us a call at 561-395-4264.