Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company developed the first FICO score to help lenders assess creditworthines. You can learn more on FICO here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other demographic factors.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score results from positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.
For the agencies to calculate 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 enough information in your report to generate a score. Should you not meet the minimum criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage loan.
The Rate Kings Mortgage LLC can answer your questions about credit reporting. Give us a call at (610) 572-3635.