Before lenders decide to give you a loan, they need to know that you're willing and able to pay back that mortgage loan. To assess your ability to repay, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. You can find out more about FICO here.
Credit scores only take into account the information contained in your credit profile. They don't take into account income, savings, amount of down payment, or personal factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess willingness to pay without considering any other irrelevant factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
To get a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your report to calculate an accurate score. If you don't meet the criteria for getting a score, you may need to work on your credit history before you apply for a mortgage loan.
Pacific Loan Brokers can answer questions about credit reports and many others. Call us at 877-310-6200.
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