A Score that Really Matters: The Credit Score
Before they decide on the terms of your mortgage loan, lenders need to know two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To understand whether you can pay back the loan, they assess your income and debt ratio. In order to assess your willingness to pay back the loan, they look at your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. We've written a lot more about FICO here.
Credit scores only take into account the information in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering other irrelevant factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to assign an accurate score. Some people don't have a long enough credit history to get a credit score. They should spend some time building credit history before they apply.
Carter Financial Solutions can answer questions about credit reports and many others. Call us: 866-840-8745 x2.