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 your willingness to pay back the loan. To understand whether you can repay, they assess your income and debt ratio. In order to assess your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company formulated the first FICO score to assess creditworthines. You can find out more about FICO here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was developed as a way to take into account solely that which was relevant to a borrower's likelihood to repay a loan.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
Your report must contain 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 payment history ensures that there is sufficient information in your credit to generate a score. Should you not meet the minimum criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage loan.
Longhorn Mortgage can answer questions about credit reports and many others. Give us a call: 512-302-9410.
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