Credit Scores
Before deciding on what terms they will offer you a loan, lenders need to find out two things about you: whether you can pay back the loan, and your willingness to pay back the loan. To assess your ability to repay, they look at your income and debt ratio. In order to calculate your willingness to repay the loan, they consult your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. You can find out more about FICO here.
Your credit score is a result of your repayment history. They don't consider income, savings, down payment amount, or personal factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed as a way to consider only what was relevant to a borrower's willingness to pay back a loan.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from both the good and the bad in your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your credit to assign a score. Should you not meet the criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage.
AmeriBest Mortgage can answer questions about credit reports and many others. Give us a call at 3217777277.