About Your Credit Score
Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders want to find out two things about you: whether you can repay the loan, and your willingness to pay back the loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to pay back the loan, they look at your credit score.
Fair Isaac and Company developed the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Credit scores only take into account the info contained in your credit reports. They don't consider your income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's likelihood to repay a loan.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score comes from the good and the bad of your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.
For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building a credit history before they apply.
At Harbor View Lending* a DBA of Megastar Financial, we answer questions about Credit reports every day. Give us a call: (207) 571-8034.