Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess your ability to repay, they look at your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.
Fair Isaac and Company developed the first FICO score to assess creditworthines. You can learn more on FICO here.
Your credit score comes from your history of repayment. They never consider your income, savings, amount of down payment, or demographic factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was developed to assess a borrower's willingness to pay without considering any other personal factors.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score is calculated wtih positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will raise it.
To get a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your credit to build a score. Should you not meet the minimum criteria for getting a score, you may need to establish your credit history prior to applying for a mortgage.
At Prime Capital Mortgage Corp, we answer questions about Credit reports every day. Give us a call: 248-644-1200.
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