Before lenders make the decision to give you a loan, they have to know if you are willing and able to pay back that loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company built the original FICO score to assess creditworthines. For details on FICO, read more here.
Your credit score is a result of your repayment history. They don't consider income, savings, down payment amount, or factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to consider only what was relevant to a borrower's likelihood to repay the lender.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative information in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise 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 payment history ensures that there is sufficient information in your report to assign an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage loan.
First Community Bank of Central Al. can answer questions about credit reports and many others. Give us a call at (334) 285-8850.