Before they decide on the terms of your mortgage loan, lenders want to know two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.
Fair Isaac and Company built the original FICO score to help lenders assess creditworthines. We've written more on FICO here.
Credit scores only assess the information contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering other irrelevant factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score results from positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your report to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building up credit history before they apply for a loan.
First Community Bank of Central Al. can answer questions about credit reports and many others. Call us: (334) 285-8850.