Before deciding on what terms they will offer you a loan, lenders want to discover two things about you: your ability to pay back the loan, and if you will pay it back. To assess your ability to pay back the loan, they assess your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company formulated the first FICO score to assess creditworthines. For details on FICO, read more here.
Credit scores only assess the information in your credit profile. They don't take into account income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess willingness to pay without considering any other irrelevant factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated from the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will improve it.
Your 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 report to calculate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.
At Price Mortgage Group LLC, we answer questions about Credit reports every day. Give us a call: 405-513-7700.