A Score that Really Matters: The Credit Score
Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must know two things about you: your ability to repay the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. You can find out more on FICO here.
Credit scores only consider the info contained in your credit reports. They never consider your income, savings, down payment amount, or demographic factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to repay the loan while specifically excluding any other demographic factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score results from both positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
To get a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your report to generate a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply.
MidTowne Mortgage can answer your questions about credit reporting. Call us: (478) 746-2063.