Before lenders decide to lend you money, they need to know that you're willing and able to pay back that mortgage loan. To assess your ability to repay, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. You can find out more about FICO here.
Your credit score comes from your repayment history. They do not consider income, savings, down payment amount, or demographic factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding other demographic factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score comes from the good and the bad of your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is enough information in your credit to generate a score. If you don't meet the minimum criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage loan.
At First Community Bank of Central Al., we answer questions about Credit reports every day. Call us: (334) 285-8850.