Before they decide on the terms of your mortgage loan, lenders want to know two things about you: your ability to repay the loan, and if you will pay it back. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. You can learn more on FICO here.
Your credit score comes from your repayment history. They never take into account income, savings, amount of down payment, or personal factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account only that which was relevant to a borrower's willingness to repay the lender.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih both positive and negative information in your credit report. Late payments count against you, but a 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 credit to build a score. If you don't meet the criteria for getting a score, you may need to establish your credit history before you apply for a mortgage loan.
Coastal Mortgage Corp. can answer questions about credit reports and many others. Give us a call: 504-866-5626.
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