A Score that Really Matters: The Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and if you will pay it back. To understand your ability to repay, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. We've written more on FICO here.
Your credit score is a direct result of your repayment history. They never take into account income, savings, down payment amount, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to consider only what was relevant to a borrower's likelihood to pay back the lender.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score reflects both the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to generate a score. Should you not meet the criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage.
AmeriBest Mortgage can answer questions about credit reports and many others. Give us a call at (321) 777-7277.