A Score that Really Matters: Your Credit Score
Before they decide on the terms of your loan, lenders need to know two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To understand whether you can pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. We've written more on FICO here.
Your credit score comes from your repayment history. They do not take into account income, savings, amount of down payment, or demographic factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's willingness to pay back the lender.
Your current debt level, 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 report. Late payments count against your score, but a record of paying on time will improve it.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to assign a score. If you don't meet the minimum criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage.
At Nationwide Home Loans, we answer questions about Credit reports every day. Call us: 5626935048.