Before lenders decide to give you a loan, they have to know if you're willing and able to pay back that mortgage. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score comes from your history of repayment. They never take into account your income, savings, down payment amount, or factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other irrelevant factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from the good and the bad in your credit history. Late payments count against you, 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 build an accurate 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.
Tenby J. Dahman can answer your questions about credit reporting. Call us at 3038627760.