Before they decide on the terms of your mortgage loan, lenders must find out two things about you: whether you can repay the loan, and if you are willing to pay it back. To figure out your ability to repay, they look at your debt-to-income 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 a lot more on FICO here.
Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other demographic factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is based on both the good and the bad of your credit report. Late payments count against your score, but a record of paying on time will raise it.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your report to generate a score. Should you not meet the criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage.
At Executive Lending Group, LLC, we answer questions about Credit reports every day. Call us at (816) 525-8000.
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