Before they decide on the terms of your mortgage loan, lenders need to find out two things about you: whether you can repay the loan, and your willingness to repay the loan. To understand your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.
Fair Isaac and Company built the original FICO score to assess creditworthines. For details on FICO, read more here.
Your credit score comes from your repayment history. They never take into account income, savings, down payment amount, or demographic factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's willingness to repay a loan.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score reflects both the good and the bad of your credit report. Late payments lower your score, but consistently making future payments on time will raise your score.
To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to generate a score. Should you not meet the minimum criteria for getting a credit score, you may need to establish your credit history before you apply for a mortgage loan.
Milestone Mortgage, Inc. can answer questions about credit reports and many others. Give us a call at (317) 595-9600.