Before deciding on what terms they will offer you a mortgage loan, lenders need to know 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 pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. We've written more about FICO here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider solely what was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score results from positive and negative information in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
To get a credit score, borrowers 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 build an accurate score. Should you not meet the criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.
At Milestone Mortgage, Inc., we answer questions about Credit reports every day. Call us: (317) 595-9600.