Before deciding on what terms they will offer you a mortgage loan, lenders want to know two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Credit scores only take into account 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 to assess willingness to repay the loan while specifically excluding other demographic factors.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score considers both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
Your report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This payment history ensures that there is sufficient information in your report to build a score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building up a credit history before they apply for a loan.
Southwest Funding #841 can answer questions about credit reports and many others. Call us at (512) 291-6100.