A Score that Really Matters: The Credit Score
Before they decide on the terms of your loan (which they base on their risk), lenders want to find out two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess your ability to repay, they look at your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Credit scores only assess the info in your credit profile. They don't take into account income, savings, amount of down payment, or demographic factors like sex race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering other personal factors.
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 is based on the good and the bad in your credit history. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
Your credit report must have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is enough information in your report to build an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to work on your credit history prior to applying for a mortgage loan.
PREMIERE MORTGAGE SERVICES, INC. can answer questions about credit reports and many others. Give us a call: 978-422-2311.