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Before they decide on the terms of your loan, lenders want to know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess whether you can repay, they look at your income and debt ratio. In order to assess your willingness to repay the loan, they consult your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthiness. You can learn more on FICO here.
Credit scores only assess the info contained in your credit profile. They never take into account your income, savings, amount of down payment, or personal factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers both positive and negative information in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to assign a score. If you don't meet the minimum criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage.
At Residential Mortgage Corp, we answer questions about Credit reports every day. Call us: (301) 773-9811.