Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must know two things about you: whether you can repay the loan, and how committed you are to repay the loan. To assess your ability to repay, lenders assess your debt-to-income ratio. In order to calculate your willingness to repay the loan, they consult your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score comes from your history of repayment. They don't consider your income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was developed to assess willingness to pay without considering any other demographic factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score considers both positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.
Your report must have 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 report to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.
Milestone Mortgage, Inc. can answer questions about credit reports and many others. Give us a call: (317) 595-9600.