About Your Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess whether you can repay, they assess your income and debt ratio. In order to assess your willingness to pay back the mortgage loan, they consult your credit score.
Fair Isaac and Company developed the first FICO score to assess creditworthines. We've written a lot more about FICO here.
Credit scores only consider the information in your credit reports. They never consider income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay without considering other irrelevant factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score is calculated from both the good and the bad in your credit report. Late payments count against you, but a record of paying on time will improve it.
To get a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to assign an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply for a loan.
Alternative Mortgage Group can answer your questions about credit reporting. Call us at 561-395-4264.