A Score that Really Matters: Your Credit Score
Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must discover two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To assess your ability to pay back the loan, lenders look at 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 consider the info contained in your credit reports. They don't consider income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was developed to assess willingness to pay while specifically excluding other personal factors.
Deliquencies, 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 based on both the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will improve 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 an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply for a loan.
AAA Mortgage LLC can answer your questions about credit reporting. Give us a call: 816-272-5550.