Before lenders decide to lend you money, they must know that you're willing and able to repay that mortgage loan. To understand whether you can pay back the loan, they assess your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they consult your credit score.
Fair Isaac and Company formulated the original FICO score to assess creditworthines. For details on FICO, read more here.
Credit scores only consider the info in your credit reports. They never consider income, savings, down payment amount, or demographic factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other personal factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score results from both positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
Your 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 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 may need to build up credit history before they apply.
Longhorn Mortgage can answer questions about credit reports and many others. Give us a call: 512-302-9410.
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