About Your Credit Score
Before they decide on the terms of your loan (which they base on their risk), lenders want to know two things about you: whether you can repay the loan, and if you are willing to pay it back. To understand your ability to repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. We've written more about FICO here.
Credit scores only take into account the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's willingness to repay a loan.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score comes 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.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your report to calculate an accurate score. Should you not meet the criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage loan.
At Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234, we answer questions about Credit reports every day. Give us a call: 214-663-5355.