Before they decide on the terms of your mortgage loan, lenders need to find out 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 pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated 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 don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. 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 raise it.
Your report should 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 payment 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 your credit history before you apply for a mortgage.
Contemporary Mortgage Services, Inc can answer your questions about credit reporting. Give us a call: 407-834-3377.
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