A Score that Really Matters: The Credit Score
Before they decide on the terms of your mortgage loan, lenders must know two things about you: your ability to repay the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. We've written more about FICO here.
Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding other personal factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score is based on the good and the bad of your credit history. Late payments count against you, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your credit to build a score. If you don't meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage loan.
Milestone Mortgage, Inc. NMLS#136714 can answer questions about credit reports and many others. Give us a call: 3175959600.