Your Credit Score: What it means
Before lenders decide to give you a loan, they must know if you are willing and able to pay back that mortgage. To understand whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company developed the first FICO score to help lenders assess creditworthines. You can learn more on FICO here.
Your credit score comes from your repayment history. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
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 history ensures that there is sufficient information in your credit to generate a score. Should you not meet the minimum criteria for getting a score, you may need to establish a credit history before you apply for a mortgage.
1st Credential Mortgage Inc can answer your questions about credit reporting. Call us: (281) 778-0805.