Your Credit Score: What it means
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company formulated the first FICO score to assess creditworthines. For details on FICO, read more here.
Credit scores only assess the info contained in your credit profile. They never take into account income, savings, down payment amount, or factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering other irrelevant factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is based on both the good and the bad in your credit history. Late payments lower your credit score, but consistently making future payments on time will improve 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 credit to assign a score. If you don't meet the criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage loan.
Peerless Residential Mortgage can answer questions about credit reports and many others. Give us a call: (513) 713-1515.