Your Credit Score: What it means
Before deciding on what terms they will offer you a 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 whether you can pay back the loan, they assess your income and debt ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated 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 profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other demographic factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score is based on 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.
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 history ensures that there is sufficient information in your credit to build an accurate score. Should you not meet the criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.
Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234 can answer questions about credit reports and many others. Call us: 214-663-5355.