Before deciding on what terms they will offer you a loan, lenders must discover two things about you: your ability to pay back the loan, and if you are willing to pay it back. To understand whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company developed the first FICO score to assess creditworthines. You can learn more on FICO here.
Your credit score is a direct result of your history of repayment. They don't consider your income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other personal factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score is calculated wtih positive and negative information in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.
For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to calculate an accurate score. If you don't meet the criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage.
Coastal Mortgage Corp. can answer questions about credit reports and many others. Call us at 504-866-5626.
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