Before they decide on the terms of your loan, lenders want to know two things about you: whether you can repay the loan, and how committed you are to repay the loan. To figure out your ability to repay, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company built the original FICO score to assess creditworthines. We've written more on FICO here.
Credit scores only consider the info in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider only what was relevant to a borrower's likelihood to pay back the lender.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score comes from the good and the bad of your credit history. Late payments lower your credit score, but consistently making future payments on time will raise your score.
To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to calculate an accurate score. If you don't meet the criteria for getting a score, you might need to establish your credit history before you apply for a mortgage loan.
At Washingtonian Mortgage, LLC, we answer questions about Credit reports every day. Call us: 410-451-2755.