Before lenders make the decision to lend you money, they need to know if you're willing and able to pay back that mortgage. To figure out your ability to repay, they look at your debt-to-income ratio. In order to assess your willingness to repay the loan, they consult your credit score.
Fair Isaac and Company developed the original FICO score to assess creditworthines. We've written more about FICO here.
Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was developed as a way to take into account solely that which was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will improve 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 sufficient information in your credit to build an accurate score. If you don't meet the criteria for getting a score, you may need to work on your credit history before you apply for a mortgage.
PREMIERE MORTGAGE SERVICES, INC. can answer your questions about credit reporting. Call us at 978-422-2311.
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