Before lenders decide to give you a loan, they have to know that you are willing and able to repay that mortgage loan. To understand whether you can pay back the loan, they assess your income and debt ratio. In order to assess your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company developed the first FICO score to help lenders assess creditworthines. You can find out more on FICO here.
Credit scores only assess the info contained in your credit profile. They never consider income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score is based on both the good and the bad in your credit report. Late payments count against you, but a record of paying on time will raise it.
To get a credit score, you must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your credit to build an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.
At America's Home Loans, we answer questions about Credit reports every day. Give us a call: 701.222.0100.